Category: Featured Tech.pinions

Apu Kumar has held senior leadership roles at iconic technology brands as well as early stage start-ups, Hewlett-Packard, Phoenix Technologies, CNET.com, mySimon and is currently the SVP, Chief Deal Hacker at BlueStacks – GamePop. This is part 1 of a 2 part series from Apu on the PC industry.

Evolution

“We are the facilitators of our own creative evolution.”

The PC needs to evolve along 3 vectors – Price, Content and Design.

Price is a very sensitive issue and affects the entire supply chain, from the chipset manufacturer, to the component suppliers and the branding companies. Price varies by market segment and by geography. The optimum pricing strategies involve many considerations that are best left for another write-up.

Content is directly proportional to the size of the installed base and the core capabilities of the platform. The PC ecosystem is acutely aware of the need for more content and apps. From the content standpoint, the PC OEMs have primarily gone down two paths to bring apps and games from Android over to the Windows PC:

(1) Android + Windows dual boot
(2) Android embedded in Windows

Dual Boot is an archaic solution with two operating systems on the same PC. End users can select the OS to boot into when they turn on the PC. To switch to the other OS, users would need to reboot the PC and wait fiddling till the device starts up again. This is a tedious process, a jarring experience and a test of patience. To make things worse, dual boot creates 3 distinct personalities on the PC, (i) the classic Windows Desktop, (ii) the Windows Modern UI, and (iii) the classic Android Home screen. The resulting experience leaves end users puzzled with questions like “Where are my apps? Will the apps installed in Android also show up on the Windows Desktop? Will I see Modern tiles for my Android apps? If I connect to the Internet on my Windows Desktop, will my Android apps also pick up my Internet settings? Can I share my files and photos between Android and Windows?” Fundamental doubts like these have led to the demise of dual boot, and rightly so.

Disruptive start-ups like BlueStacks have put on their thinking caps to embed Android in Windows by using a concoction of new and unique technologies including virtualization, binary translation and graphics acceleration. End users are blissfully oblivious to the complexity of the underlying technologies as they enjoy Android and Windows side-by-side or simultaneously on the same PC. Users can freely create app shortcuts and modern tiles in Windows 8 for Android apps. But the core system settings like Wireless, Internet, Display, Printers are only accessible and configurable through Windows. Sensors like cameras, accelerometers, gyros are detected and enabled automatically. Games and apps can run windowed or full screen. Touch screens and touch pads are supported, as are smart key mappings and keyboard shortcuts. CES 2014 validated this approach with many of the leading PC brands and x86 chipset vendors launching PC designs with Android embedded in Windows.

Good design is paramount to creating a successful product. Design-centric thinking has molded phenomenal products and great companies. Over the past years, PC design has progressed toward convertible form factors, also known as hybrid PCs or two-in-one PCs. Convertibles are an attempt to bring the goodness of mobile to the traditional laptop. By introducing touch screens and sensors, the ecosystem is hoping that consumers will see more value in the PC.

At CES 2014, PC brands justifiably paraded their convertibles with the glitz and glamor of an international auto show. The line-up contained a mix of impressive form factors and exotic designs. Some OEMs chose to detach the display from the keyboard of a traditional clamshell laptop PC to provide a tablet-like experience. Re-attaching the display to the keyboard enabled the classic laptop experience. Others OEMs chose to research, design and invest in fancy hinges to swivel, snap or contort the display to convert the PC turned into a tablet like magic.

Investing in design always pays rich rewards. It is refreshing to see the effort and focus on industrial design from the PC ecosystem. Convertible PCs are off to the races and the best designs will emerge victorious.

Resurrection

“If you can’t beat them right away, join them while you regroup and refocus.”

It used to be that the PC was the go-to device for all my computing needs. Now, I am tethered to my Android phone at all times as my main device for communication, social media, music and gaming. When I lean back, I put aside my phone and pick up my iPad, my preferred device for browsing, reading and watching movies. My phone and tablet also allow me to be creative and productive with a rich selection of apps for email, spreadsheets, document creation, sketching, ideation, 3D design, animation, project management and sales enablement. I can go so far as to dock my iPad to my Zagg Folio and viola, I have a functioning clamshell laptop – well almost.

Principal analyst at Creative Strategies, Tim Bajarin, is spot on in saying, “PCs continue to play a role in many people’s lives, but they are not as central as they once were. Tablets and smartphones have encroached on their place.” We are aware that the PC offers questionable value relative to mobile devices. This is in the matter of design, software, apps, services, simplicity and ease of use. Consumers are unwilling to overlook these glaring problems. Like analystß Ross Rubin wrote “it seems that anything that whiffs of the traditional PC has all the market appeal of a month-old banana”. The PC needs to wow consumers. Every PC needs a touch screen and a physical keyboard. Until such time that voice can be accurately interpreted, keystrokes will continue to be the input mechanism of choice. The classic hinge that connects the touch screen to the keyboard needs to be replaced with new connectors and hinges, both physical and wireless. The conventional “clamshell” form factor needs to transform into an origami of designs that unfold new modes of usage. Brands like Lenovo, Asus, Acer and Samsung have been creative in their industrial design with their new line of “Convertible PC” products. But that’s not enough; there needs to be a more concerted effort to innovate with a fierce sense of urgency. The PC needs to rip through its constrained design and race ahead to a new existence.

The PC can morph into a more relevant device, simple, useful and elegant. This will take a herculean effort on part of the PC manufacturers to innovate with new hybrid designs; they must be thinner and lighter and at lower price points. And then there’s software. Everyone agrees that the Windows PC needs apps by the hundreds of thousands to give it a fighting chance against Android and iOS. Microsoft will need to do its part in simplifying the new bipolar Windows OS and make it less power hungry. Startups like BlueStacks will need to work their magic to bring the full gamut of mobile apps, games and cloud services to the PC.

The PC industry needs to do all this and more and execute at lightning speed since their very existence is at stake. While they work to fix the bigger problems, it would behoove the PC industry to also find creative ways to connect and bridge the PC with the dominant mobile devices of today, namely Android smartphones and iPhones, with the goal to sync, extend and leverage the great content, apps, games and services from mobile devices and bring those to the PC. In short, what is need is total metamorphosis.

Empires rise and fall. From the ashes of fallen empires have risen new and more resilient worlds, with smarter and wiser constituents. The PC could face its destiny head on, or just lie down and be condemned to obscurity. The future of the PC hinges on this.

Apple’s TV device made the headlines again this past week when Tim Cook mentioned at the annual shareholder event that it was a billion-dollar business for the company in the last fiscal year. Apple subsequently made clear that this included content as well as hardware sales connected with Apple TV. Though Tim Cook made clear that such numbers make it a little harder to describe it as a mere hobby, it’s still a tiny fraction of Apple’s overall revenues. It’s likely that the Apple TV in its current iteration (the small black puck) has sold around 20 million units in total at this point, at $99 a pop. To put that in context, consider that Apple hasn’t sold fewer than 20 million iPhones in a single quarter since 2011, and that it routinely sells that many iPads each quarter. The Apple TV generated under 1% of Apple’s revenues in the last fiscal year. At this rate, Apple is still selling two to three times as many Macs each quarter as it is Apple TVs.

Why won’t the Apple TV take off in the same way as Apple’s two biggest products? The biggest single reason is that, although it serves three useful functions, it doesn’t solve a fundamental issue in the category in the same way as the iPhone and iPad do. What is the fundamental issue in the TV category? Consumers want single-input, single-interface access to all their video content, and instead are presented with having to switch devices, inputs and apps to get from one show to the next. The things they want to watch are spread across traditional television services from cable, satellite and telco (CST) providers, online subscriptions like Netflix and Amazon Instant Video, free, ad-funded services like Hulu and networks’ own apps and websites, and pay-per-use services like iTunes, Amazon Instant Video and Vudu. There are apps dedicated to helping you figure out which of your many services might carry the particular show you want to watch – that’s how bad things are.

Apple TV does now carry lots of apps which allow you to watch a variety of content without switching inputs on your TV, but that’s only a partial solution. You’re still having to hop between apps, with no universal search to allow you to locate shows across them (unlike Roku). But there are other hassles too – people still have to maintain multiple subscriptions and authenticate themselves to the various apps they want to use. Apple has simplified this somewhat by allowing customers to subscribe to Netflix and other services through their Apple ID. But the authentication process you have to go through to watch HBO Go, the Disney channels and other TV Everywhere content is a significant hassle. Entering usernames and passwords on any TV device is a pain in the neck, and having to do it repeatedly is even worse. The ideal scenario in the current environment would be connecting your Apple ID to your CST provider ID and then having it automatically authenticate you across all your apps – something it sounds like Apple might have been trying to accomplish as part of its talks with Time Warner Cable.

Though adding universal search and one-time authentication would represent progress, it would be progress of a very incremental kind, leaving consumers with many of the existing hassles they deal with today, and not solving the fundamental fragmentation in the TV space. It would leave the Apple TV without a comprehensive live TV offering (beyond the specialized sports channels it offers today). That was likely the major focus of the Time Warner Cable talks, which are obviously now unlikely to come to fruition. But that, too, would have represented a short-cut to what has to be the end game for Apple in this space: offering a full-service TV subscription offering that would combine traditional live linear broadcasting with on-demand viewing of both recent and back-catalog TV shows and movies. That kind of offering would be truly disruptive in the way the iPhone and iPad were before, and would finally make the Apple TV a compelling offering, truly differentiated in the market and offering something really unique: a single-input, single-interface, single-account TV service.

Besides goosing Apple TV sales, this would help Apple in a couple of other ways too. One of the reasons why investors are so easily spooked when it comes to Apple, and why its valuation always seems way out of whack with its performance, is that its business model relies on huge, roughly yearly hits in its two major product categories. Annual iPhone and iPad releases have to succeed in a huge way to keep the company’s growth and profit trajectory going. The problem is that there is always the risk – entirely theoretical so far – that one of these hits will turn out to be a dud. Adding the kind of annuity revenue stream an Apple TV service would offer – several hundred dollars per year per customer – would provide the sort of predictable revenue stream that investors like to see, which might offset some of the perceived risk associated with the hardware business.

The other big thing this service would do is reinforce the appeal of the Apple ecosystem, and of an all-Apple portfolio of devices in the home. Many people today combine iPhones with Nexus tablets, iPads with Samsung Galaxy smartphones, and all of the above with a Roku, a smart TV or a Playstation or Xbox for TV viewing. An Apple TV service, available like most of Apple’s other services exclusively on Apple devices, would provide a powerful glue that would stick all those devices together and give consumers very strong reasons to buy only Apple products.

The big questions remanning are whether such a service would actually make any money, and whether it’s even possible for Apple to put such a service together. On the first point, there’s solid evidence that it is possible to make very good margins in this business. The closest parallels to what Apple would offer are the cable networks, since they also acquire content rights and sell them to consumers on a subscription basis, but without the delivery infrastructure that CST providers need. These companies in the US have very good margins, in most cases at or above Apple’s recent levels (these numbers are all specifically for the cable network divisions of these companies):

Another company with an analogous business model is Netflix, particularly its US streaming business, which has been generating steadily increasing margins which are now in the mid-20s, just below Apple’s recent levels. While neither Netflix nor the cable networks’ businesses are exact analogies for what Apple would do in this space, there is good evidence here that packaging and delivering high quality video content on a subscription basis can be very profitable.

The bigger challenge is content rights, which is no doubt why we’ve seen many stories over the last several years about Apple trying to acquire them. The kind of bundle of live, recent and back catalog content rights we’re talking about here is unheard of, and Apple would be charting new territory (something it has a good history of doing). But Apple has both the existing audience (Intel’s biggest problem), content relationships, and DRM and other structures in place to reassure content owners that it can make a success of this business. And DISH has reportedly just signed just the sort of deal Apple will need to sign with Disney, already a strong Apple partner, which is promising. However, this remains the biggest challenge to this strategy, and the Time Warner Cable talks may well have been a sign that Apple wanted an interim solution while it works to create the ideal product.

The other thing worth thinking about is broadband providers’ bandwidth caps and their impact on this sort of service. As long as people are only using Netflix and Hulu to supplement traditional CST-provided TV, their bandwidth consumption is likely to stay within the 250GB caps that are starting to be implemented by major broadband providers. But if such a service became the only way a household consumed video, it would significantly increase consumption and might lead to problems.

Overall, the only way I can see for Apple to turn the Apple TV into something more than a hobby is to truly disrupt the TV space, and the way to do that is to launch not a TV set, but a TV service, with Apple TV, iPhone and iPad as different ways of accessing that service. This would finally turn Apple TV into a truly unique product, it would provide a very different kind of revenue for Apple in the form of predictable, recurring monthly subscription fees, and it would cement the Apple ecosystem as a compelling option in consumers’ minds. And this would be a substantial new revenue opportunity for Apple – just those cable networks listed above generated over $70 billion in revenue last year, almost entirely in the US. Given the content relationships Apple already has in many other markets, it could expand the service beyond the US in the coming years, providing a significant ongoing source of revenue growth.

 

India is considered to be the next big superpower and second largest market for smartphones. It is a country Apple often ignores in their giant plans to get iOS to concur the smart phone world. Sure, bureaucratic hurdles do exist, and Tim Cook has pointed those out on prior earning calls, but while every other tech giant has managed to clear them, what prevents Apple?

India is one of the world’s largest and most price conscious mobile markets. India is home to a burgeoning middle class that consists of young urban youth who are looking to buy the latest smart phones and be one amongst their peers internationally. Apple, however, doesn’t seem to see India this way. Why do I say this? Read on.

In the last two years, Apple has witnessed strong demand for its iPhones in India. Incentivized by the fact that Apple teamed up with local financial institutions and large retail chains to sell iPhones on interest-free loans and even at a slight discount to students. While this did seem like a signal that Apple was serious about entering the Indian market, their overall stance has been rather bearish.

Retail and Pricing

Apple, in India, has decided to stay away from directly entering the market to retail its products. They instead, choose distributors, who sell them at a rather high margin. This has led to poor positioning of the Apple brand in Indian retail stores, and so called Apple Premium Resellers. Few salesmen know much about the iPhone’s cool features. Many prospective buyers leave the store ending up buying either an Android or Windows mobile device. Consumers are left considering it “a more value for money proposition” simply on hardware specs.

Who wouldn’t fall for a salesman claiming a 13 Mega pixel camera (albeit with a poor lens) and a quad core processor (albeit with a slower processing speed) is better than the superior iPhone? As Benedict Evan’s rightly points out, “They don’t go into the shop and ask how new the chipset is – they look at the phone itself as a buying proposition.”

India is one of the most expensive places to purchase an iPhone. The iPhone 5s is sold at a whopping ₹53,500 or $873 for the 16GB unlocked model, while the iPhone 5c is sold at ₹42,500 or nearly $688.

The iPhone 4s is sold in a similar price band as Google’s latest Nexus 5. Think about it, a phone with technology that is nearly 2 years old is being sold for the same price as that of what many consider a top end Android device.

This has also led to many preferring to purchase their iPhones either abroad or to ask a cousin/friend traveling abroad to bring them one back. Apple, to prevent this, doesn’t service iPhones purchased in a country other than India (more on this below).

Service

Apple has outsourced the servicing and warranty fulfillment of Apple devices in India to registered third party companies referred to as Apple authorized service providers (ASP). These ASPs refuse to repair or replace an iPhone purchased outside India. Not to service your own product, only because it was purchased in a different country, is quite frankly ridiculous. Especially for mobile devices meant to be carried around. After paying nearly a $200 premium on buying that iPhone 5s in India, the service isn’t up to Apple’s famous service levels experienced internationally either. It takes a minimum of 3 days for any Apple device to be serviced/replaced.

In the US, like in most international markets that Apple services, it should be a quick process to get a new device. I was recently at the Apple store in Hong Kong, and it took me under 10 minutes to get a replacement pair of Apple EarPods.

One service technician mentioned to me that, for every replacement or repair job, the ASP requires a clearance from an Apple employee who is based either out of Singapore or the US. Often, parts are specially flown in from Singapore in order to repair Macs. Incredible isn’t it?

App Ecosystem

The App Store is a joke in India. Most apps sold in other countries aren’t available on the Indian store. Instead, the app store in India is riddled with fart apps and other junk.

Until very recently, users were also unable to purchase music and other media content from the iTunes store. Even today much of the content is still inaccessible to Indians. iTunes Radio is a feature that Indian users won’t be laying their hands on for another few years. And to talk about Apple Maps in India would be a rather cruel joke. Apple’s Maps feature set in India is rudimentary at best. Much of the data is erroneous. Cities have satellite imagery that is a good 5 to 7 years old. Transit information is simply unavailable. While Google has made large strides to provide not just transit information, but also traffic conditions, restaurant information/reviews, and more on their Maps app.

Does Apple Have a Future in India?

In a market that is said to be growing at about 15% a year, the fact that Apple seems to look at selling their iPhone in India as an after thought is just ridiculous. India is thus, not surprisingly, one of the few destinations internationally. A place where Samsung has overwhelmingly captured the higher end of the market with their Galaxy range of devices. Nexus sales are booming. According to Google’s own trends service, the interest for the Nexus 5 was the highest from India in recent months.

By treating India as a stepchild, Apple may fast lose a rather large and promising market. One that could boost lagging sales of the iPhone, shore up the Apple stock, and most importantly bring in a huge loyal customer base for the iOS ecosystem.

Meanwhile, Xiaomi has already expressed interest in the Indian market while Micromax continues to grow.

Is someone at Apple listening?

Apu Kumar has held senior leadership roles at iconic technology brands as well as early stage start-ups, Phoenix Technologies, CNET.com, mySimon and is currently the SVP, Chief Deal Hacker at BlueStacks – GamePop. This is part 1 of a 2 part series from Apu on the PC industry.

Trepidation

“Trepidation is either the sign of great weakness or great wisdom.”

The consumer PC business appears to be in the doldrums due to the invasion of smartphones, tablets and mobile devices. The back to school, thanksgiving and holiday sales that have traditionally been the high points for the consumer PC business have shown a sharp decline year over year. Traditional PCs and laptops are rapidly losing mindshare and market share. The verdict all round is that the PC is in its death throes. The writing is on the wall. But have we not known that already?

Meanwhile, smartphones are recording explosive growth and the Android phones are lording over the mobile world. New iPhones have surged ahead with phenomenal success. iPads, Kindles and Android tablets are relentlessly marching from strength to strength. The year 2013 witnessed over 1 Billion smartphones powered by Android and iOS, per IDC. These numbers are staggering and dwarf everything we’ve seen in the device space in the past 3 decades. The meteoric rise of smartphones and tablets, so smart and so sudden, has caught the PC ecosystem in complete shock and awe.

How has the PC ecosystem responding to this onslaught from mobile? The initial instinct has been to mirror the attributes that are perceived to have contributed to the success of smartphones and tablets. PC brands and x86 chipset vendors are working feverishly to create ultra-thin and lightweight designs with touch screens and a plethora of sensors. There is a manic focus on performance and battery life to get a minimum of 24 hours of use on a single charge. While touch, battery life and performance are the absolute must parameters to be focused on, this feels like an uninspiring incremental approach and more of the same old wine.

Ironically, some of the largest PC brands are hedging their bets. While they are cranking out x86-based PCs, they are also unhesitatingly investing in ARM-based smartphones and tablets running Android. This is true of Lenovo, Asus, Samsung, Toshiba and others. Does this not speak volumes of their confidence in the longevity of the PC?

The reversal in fortunes for the PC is reflected in rapidly declining device sales, shrinking profit margins and anemic financials. PC OEMs are struggling. Some OEMs like Dell have opted to delist and go private. Some like Acer are struggling and bleeding money each quarter. Some like HP have tried to spin-off their PC business without success. Others like Sony have sold their PC business for various strategic reasons. Many have restructured, hired new CEOs, reshuffled their entire management chain and tried every jugglery hoping in vain for a much-needed turnaround.

The core problems for the PC stretch far beyond the myopic view of an industry in denial.

Revelation

“You don’t know what you don’t know.”

For the PC business, the trillion dollar question is – what do consumers really want? Consumers spend an inordinate amount of time online. Online behaviors have completely and dramatically shifted in favor of mobile devices. Smartphones and tablets account for 82% of all connected devices, per Jumptap. Consumers prefer the instant gratification that a mobile device provides to get online instantly and do what they want to do.

Movie and video consumption accounts for the largest chunk of all online traffic. Content streaming was once predominantly a PC-based activity. This has now shifted to tablets, smartphones and game consoles. The PC is no longer the entertainment hub it once used to be.

The world of gaming has gone through a disruptive change in the past four years. The PC was the bastion of hardcore gaming. Graphics-heavy games used to be written explicitly for powerful PC platforms. Stores like Steam thrived on sales of AAA game tiles for PC. Barring a few, developers do not write games for PCs anymore. Gaming has made a 180 degree shift to mobile. The most popular games are now on mobile first. Almost 80% of all age groups (18-24, 25-49, even 50+) are playing games on smartphones and tablets, per Comscore. The PC is down to 20% and dropping fast.

Why do consumers gravitate to mobile devices? They do so simply because they can easily access their favorite games and favorite apps on mobile first. Consumers spend time and money playing games on mobile. At the same time, consumers also prefer mobile apps over traditional web sites. So what do consumers really want? They want phenomenal content. They want useful apps. They want great games. And if consumers get access to great content, apps and games on their PC, they just mighty spend more time on their PC than they do today.

The mobile app ecosystem has boomed in the past 4 years. The dominant app stores of today have over a million apps each. Google’s Play Store and Apple’s App store have brought riches, fame and glory to many a game developer. The consequent monetization of games and apps is driven by the laws of large numbers. It is only natural that game developers gravitate towards large and rapidly growing installed bases – like the iron shavings around the magnet. Most developers are less inclined to write apps for a platform on the decline.

It is, therefore, imperative that the PC needs mobile apps like a donut needs a hole, like the heart needs a beat, the ocean needs the tide and the body needs the soul. For the present, developers will continue to write games and apps for mobile first. This will not change anytime soon. But the PC ecosystem certainly can shed its inhibition or hesitation and be smarter about embracing mobile, leveraging content, games and apps from mobile and extending over to the PC.

Look for Part 2 of this series on Thursday.

For decades now, debates have raged, developers have been wooed and dollars have been spent trying to convince the world of the value of various consumer-focused computing platforms. From the early days of Apple DOS, AmigaOS, Atari TOS, and MS-DOS; through the middle period of Windows and MacOS; to the modern battles of Android, iOS, Windows Phone and more, there’s probably more time and energy spent on these operating system issues than virtually any other aspect of modern computing.

While I don’t expect these ongoing skirmishes to end anytime soon, I believe we are on the cusp of a new type of platform battle that will start to make those debates less relevant. I’m referring to services platforms, or what I call a “metaOS”. The concept behind a metaOS is something that lives beyond (or above) the existing platforms that drive today’s devices (hence the name), yet can be accessed through them to achieve an end user’s goal: mapping a destination, communicating with a friend, accessing media content, sharing a file, or much more. Virtually all of today’s device platforms first offered applications with these capabilities and, over time, these applications have morphed into services that make these functions easier and/or faster to do.[pullquote]The concept behind a metaOS is something that lives beyond (or above) the existing platforms that drive today’s devices, yet can be accessed through them to achieve an end user’s goal.”[/pullquote]

The platform creators (Microsoft, Google, Apple) have built services that are tightly tied to their base platform, both to offer a more seamless experience and because they recognize an opportunity to monetize these services over time. In fact, business models built around this core concept of linking revenue-generating services to essentially “free” platforms.

But what happens if this binding link between device platforms and services is broken? To my mind, a very interesting and exciting next few years as companies are forced to reinvent themselves, reconsider with whom they partner (or acquire), and work to build a comprehensive metaOS-style offering that delivers a set of services that people want, regardless of the device platforms they currently own and use.

One of the critical turning points for this shift occurred at last week’s Mobile World Congress in Barcelona. Just prior to the culmination of its purchase by Microsoft, Nokia made the initially rather confusing announcement of a line of Android Open Source Project (AOSP)-based smartphones called the X series. Many have misinterpreted the news as somehow giving in to Google. (Apparently, including some who walk the halls in Redmond.) As has been thoughtfully explained elsewhere on this site, however, the announcement is actually a very clever strategic move on several levels. For the sake of my argument, I want to focus on only one aspect of it. By integrating Microsoft-owned services on top of a Google OS, Nokia (and presumably at least some people at Microsoft) redirected the focus of the conversation away from the device OS and onto the services platform. That one move, by itself, constitutes a dramatic shift in strategy for Microsoft and places a very big spotlight on the shift in emphasis that I mentioned at the beginning of this column—the focus on services that sit above and beyond a simple device platform.

Now, to be fair, there are a number of challenges associated with this Nokia/Microsoft move. First, most people still focus on device platforms because platform-specific applications are where they currently achieve their intended goals. Over time, however (and the exact timeframe is today’s $64,000 question), I expect we will see many of the most popular applications evolve into platform-agnostic services, partly because business models are expected to move this way. In fact, arguably, many of them (think Yelp, Facebook, What’s App, Instagram, etc.,) already have. Another challenge is that the quality of some of Microsoft’s services are not up to the standards of the competition, particularly around its media offerings. That issue, however, could be addressed with the right acquisition (or acquisitions).

But the Nokia X-Series news wasn’t the only announcement from MWC to highlight this shift towards services. The Jolla Sailfish OS announcement described a business model and an OS where services from various sources could essentially be plugged in, letting vendors create a product that came “prebundled” with whatever combination of services they felt their customers would want. So, for example, if a company like China-based Alibaba wanted to offers its customers a mobile phone with direct links to its ecommerce sites and included its electronic payment services in it, they could. (To be clear, there is no announcement of such a phone—just a possibility.) Now, Jolla has even bigger challenges to get to meaningful scale than Microsoft/Nokia do with their X-Series, but still, it’s an intriguing new alternative.

Yet another reason to think about this move away from platform OS’s and towards a service-based metaOS is the next set of devices: smart wearables. As discussed in my column from last week on smart watches, OS platforms on wearables are going to be almost irrelevant, but access to services will be critical, so the need for a set of services that can be accessed from any device is going to be increasingly important. Given the growing OS diversity in most people’s collection of “regular” devices (PC, tablets and smartphones), the demand for platform-independent services is just going to get that much stronger.

To be clear, the implications of this shift go well beyond a discussion about Android and Windows Phone. Apple, Microsoft, and Google, as well as lots of other major companies with popular services but without current device platforms (think Facebook and arguably Amazon) need to think about, and many likely will, organize a set of service offerings that people can access, regardless of their device platform. Of course, some may choose to keep their services with only their platform, at least in the short term, but ultimately I believe the companies who are willing to move to multi-device platform support will gain some key advantages that promise to reshape the “metaplatform” wars for years to come.

Reading my reports here and there, probably mostly on Facebook, you may have heard the stories about me, so I’ll fill in quickly. I only had a very slight headache, but on Sunday afternoon, I started pronouncing some things very oddly and by midday Monday, I was both talking and writing what would best be called nonsense. I went to the doctor Monday afternoon, where an MRI showed either a stroke or a tumor, so I was sent to the hospital, where a more detailed test showed a tumor above my left ear and brain swelling around it.

Fortunately, medication quickly treated the swelling and by the time I was sent home yesterday, I was mostly better and the recovery continued today. I’m taking medication to continue the shrinking and I’m getting back to work. I’ll be heading up to Johns Hopkins Hospital in March for detailed testing, to be followed by surgery to remove the tumor. A lot will depend on just what kind of tumor it is, but if I am lucky, I’ll soon be back to normal for good. I’ll keep you posted on the news as I learn.

Meanwhile, I managed to learn a surprising amount in a couple of days.

Personal Devices for the Hospital

Even with a swollen brain, I was bored to death in bed. Suburban Hospital in Bethesda, affiliated with Johns Hopkins, may be a wonderful hospital but it is not very comfortable and has a ghastly TV system. Until they let me out into a chair with a table a couple of hours before I went home, it was very hard to use my PC efficiently. My salvation was a phone and an iPad. I suppose my Android phone, currently a Moto G, would have done fine, but I had an iPhone 5s, and I spent more time than usual on the phone describing my situation to colleagues and friends. The iPad Air was the most critical equipment, much more so than say my Samsung Galaxy Tab would be. I used the iPad for email, Facebook, LinkedIn, the web, and finally, when I got clear of the work, Netflix. I have no idea why the hospital has such weird Wi-Fi, but it had lots of things blocked, including Facebook and part of email. This required me to keep switching between having Wi-Fi off and on when I needed something available. Fortunately LTE service on both my phone (AT&T) and my iPad (Verizon) were good.

Once I made it into a chair, I tried using my MacBook Air. Unfortunately, the Wi-Fi was a real pain in the neck because of blockage, so I just gave up and started either the iPhone or the iPad as a personal hotspot. I shouldn’t really have had to, but it turned out to be a big help.

I really do wish that a hospital provided Wi-Fi for patients. Those who are conscious and in need of something for either work or entertainment faced a terrible quality TV offering such wonderful choices as Fox TV News and HLN Network. Proper network availability is a big help for a variety of uses. Fortunately, at least Netflix did work through Wi-Fi, which could keep the cost under control.

Medical Devices

My sleep Tuesday night–having gotten nearly no sleep Monday–was  desperately needed. But patient sleep seems to be low on the list. I was woken up every hour or two by a nurse who took my blood pressure and pulse-oximeter reading. The odd thing is that I had a blood pressure cuff attached to some sort of automatic reader, a pulse-oximeter connected to my finger, and a EKG device wired to chest sensors plugged into a radio unit stored in my gown pocket.

Unfortunately, no one seemed prepared to use this. The nurse woke me up once an hour or so, which made me more and more angry as the night went on. The nurse used a separate pulse-oximeter on my right hand while the cabled one on my left hand eventually came disconnected, leaving a couple of feet of cable attached. The EKG cables gradually came disconnected from my chest, leaving me with a useless but tangled-up collection of wires. It’s pretty difficult to tell what it was really supposed to do, but it mostly just left me uncomfortably snared in wires that did no good. And I managed to stop listening to the alarms beeping on the screen over my bed since the warnings seemed not really to mean anything important.

You would think that modern, remotely connected sensors could greatly simplify the systems that gave important information to the nurses responsible for supervising the patients while avoiding the constant wake ups. They do not seem to be quite ready for that.

(Then there’s the disgusting part you may want to skip. To urinate, a frequent problem because I had so much to drink, I was supposed to push a button to call the nurse who would show up to help me empty. Unfortunately, the nurse tended to take plenty of time at night and the bladder wasn’t so patient. It was nasty and there must have been a better way to deal with it, but we’ll skip the details.)

The Importance of Facebook

I have been a member of Facebook for many years, probably going back to its first non-campus dates, and I have to admit that I have never really cared for it very much. I am set up for my Tweets to get posted on my Facebook stream and I take a quick look every day. But I have never looked at it more than I have to.

My illness drastically changed my view of Facebook for the better. I guess I probably horrified some of my friends and acquaintances with my first postings yesterday before my brain was yet working correctly. Fortunately, it got better somewhat quickly as the day went on so that by the afternoon and this morning I could write intelligent reports. And I am deeply thankful to old friends, including Walt Mossberg of Re/code and Josh Weinberg of Digital Life Group, both dear old friends, for posting my condition.

Instead of ignoring Facebook the usual way, I found myself receiving wishes and greetings from dozens and dozens–maybe hundreds–of people who follow me on Facebook. They ranged from t0day’s friends  to acquaintances  I haven’t communicated with in years, maybe decades. The wishes from everyone, their thoughts and their offerings have dramatically helped me feel better quickly. My only regret is that I have not had time to answer every one who has sent me greetings because they all deserve responses.

But this also tells me a lot more about Facebook than I expected. I’m not quite sure who Facebook belongs to. Maybe today it is older participants than the younger members who created it, but it gives us important ways to communicate information directly. In the old days, some of your friends would probably hear about your health condition in a  third-hand phone call, by which point the information had gotten thoroughly confused. Now you, or at least a close associate, can send the information one-to-one in a direct way. This never used to happen, and it is a big, big deal. Although I still run into plenty of silly stuff posted on Facebook, I now finally understand why it is really important in a way that changes our communications. And that truly matters. Maybe when Mark Zuckerberg was getting started at Harvard, he understood something that changed the world in an important way. I’d like to believe that.

—–

For those of you interested in a little report on my condition, my ability to communicate has improved massively as medication eliminated swelling of my brain. I think I’m now maybe 80% to 90% better–I still have occasional difficulty remembering a word, but I can read and type pretty much normally now–and I hope I’ll be back to 100% tomorrow. Because there seems to be no emergency need for surgery, the technique is to let everything proceed to shrink as much as possible before the testing and surgery. I hope it will be something I can recover from quickly and permanently, but there’s still a lot to learn. I’ll share the information with you when I know about it.

 

 

 

 

 

 

Back in 2012, Microsoft’s then CEO Steve Ballmer started talking about Microsoft as a Devices and Services company rather than as a software company. This was a major strategic shift, and it was behind major moves like the launch of the Surface and the acquisition of Nokia’s Devices and Services business. This is a signal that Microsoft recognizes the threats to its hitherto core software businesses, but also a fundamental move towards hardware and services-based models for monetizing software. Apple is arguably in many ways a software company, but it now monetizes essentially all its software through hardware purchases. Google is a software company, but makes none of its money through traditional software licensing models.

Two big questions arise from this: firstly, does it even make sense for Devices and Services to be the basis of a strategy? and secondly, if it does, what are the keys to doing this successfully? Let’s take each of those in turn. (Note: Microsoft’s Devices and Services strategy applies both to its Consumer and Enterprise businesses, but I’m going to focus here on the Consumer side).

Does Devices and Services even make sense?

Ben Thompson recently argued that a Devices and Services strategy is fundamentally flawed:

The truth, as I’ve written multiple times … is that a “Services and Devices” strategy is fundamentally flawed. Either be everywhere with your services, or differentiate your devices.

I see what he’s saying, but I don’t believe it’s right. I think there’s an enormously powerful link between devices and services which the two most successful players in the industry today – Apple and Google – have both exploited. When you have compelling services, and when the best way to experience those services is to use them on your devices, then there’s a virtuous circle between your services and your devices which allows each to benefit the other. As people find the services compelling, they seek out devices which provide the best experience for those services, and become loyal to them. As more people buy those devices, more people use the services, which makes them better and creates loyalty to the broader ecosystem of devices which provide similarly optimized experiences.

Apple and Google have approached these things slightly differently – Apple considers that its services should not just be best on its devices but exclusive to its devices (with the exception of the desktop iTunes software), whereas Google benefits greatly from wide adoption of its services across platforms but optimizes them for its own as a driver to get people onto the platform it can monetize best (Android). Both companies, though, are effectively combining devices and services, and if you ask people why they buy either iPhones or Androids the answer is many times that they want easy integration with services from each company that they’re already using (such as iTunes or Gmail).

The counter-argument to all this is that these two companies have each chosen either Devices or Services as their core business, and only participate in the other as a way of adding value to that core business. That’s true to some extent, and it’s what’s behind Apple’s exclusivity approach, but I’m also reminded of the Alan Kay quote Steve Jobs was so fond of: “People who are really serious about software should make their own hardware”. Ultimately, the most successful companies in this space will combine hardware, software and services to create compelling experiences. That’s certainly been true for Apple, and I’d argue it’s increasingly true for Google too as it gets deeper into hardware through Nest and Google Glass even with the disposal of Motorola.

What are the keys to success?

If combining Devices and Services does make sense, then the next big question is what it takes to be successful in combining those two at the heart of a strategy in the consumer technology market. Again, we can learn from Apple and Google here. I believe the keys to success lie in answering certain questions:

• How will you make money?
• How far along the better/exclusive spectrum do you want to go?
• What are the compelling services around which you will build your strategy?

Business models

Although companies don’t have to pick either Devices or Services as a core strategy, they do need to establish a core business model. Which will they attempt to monetize: hardware or services? Amazon sells hardware, but does so with thin or negative margins as a way to sell more services (content). Apple makes large margins on hardware and gives away most of its software and services. Google sells some hardware (Nexus devices) essentially at cost, and services for free, and monetizes them through advertising. One of the key questions for Microsoft is how they want to make money going forward in the consumer market. Will it be hardware alone? Mostly services? Does charging for software still play a role? A big part of Microsoft’s current problems stem from the fact that, despite the headline shift to a Devices and Services company,  it still acts as if it sees Windows licensing – software – as its core business. In order to pursue a focused Devices and Services strategy, Microsoft needs to resolve this conflict.

Only on Microsoft devices, or better on Microsoft devices?

Making the decision about how it wants to make money will help Microsoft make the next decision: does it want to take the Google approach (available on many devices but best on Android) or the Apple approach (exclusive to Apple devices), or land somewhere in between. If the main monetization strategy is hardware, then Apple’s exclusivity approach makes the most sense. If it’s services, then going big makes the most sense. Microsoft faces two fundamental challenges here which are somewhat unique to the company: firstly, it’s used to providing market-dominant services and software, and secondly one of its most compelling services – Skype – didn’t start life as a Microsoft service. But it needs to decide how exclusively tied Microsoft’s services will be to Microsoft devices, and if they’re not exclusive then how to make them better on Microsoft devices. The latter is a lot harder to figure out, but there are some lessons from Google’s approach:

• Better features / functionality, or earlier access to new features – Google Maps’ navigation features, Google Now and many others both started on Android before moving to iOS and continue to enjoy some advanced features on Android which iOS doesn’t offer.
• Single sign-on. I’m a heavy user of Google services on my iPhone, and there’s nothing worse than having to sign in to every separate Google app, especially if you’re using two-factor authentication. The Android experience significantly simplifies this by having single sign-on for all Google services and apps (much as Apple does with iTunes / iCloud accounts on iOS).
• Unique features – Google Keep, Google Wallet, Google Play Movies and other apps are all exclusive to Android in their full form.
• Tighter integration with core services – Chrome and Google Voice can be set as the default apps for web browsing and phone calls on Android devices, but can’t on other devices.

Microsoft is already doing some of this with its services on Windows Phone Windows 8, but there’s a lot of room for improvement.

Creating compelling services

But the biggest single question, and the one I think Microsoft is going to struggle with most, is what are the compelling services that will drive people to Microsoft’s devices? So far, Microsoft has made its two biggest money-spinners – Windows itself and Office – the centerpiece of its marketing around both Windows 8 and Windows Phone. But the fact is that neither of these is all that compelling to consumers, and they have nothing like the driving force of iTunes or Gmail or Google Maps in bringing people to the platform. So what’s the answer?

The two key things people use their personal devices for are communications and content, and the solution to Microsoft’s challenge is to develop, create or acquire compelling services in both of these areas. A quick look at Apple and Google’s most compelling services reinforces this point:

• Apple – iTunes (content purchasing and management), iMessage and FaceTime.
• Google – Gmail, Google Maps, Google Play.

These services are big reasons why people buy iOS and Android devices respectively, but what are the equivalents for Microsoft? Windows Phone’s biggest single problem is that it doesn’t have a compelling set of services that are driving people to buy it. Today, the best selling devices on Windows Phone are the cheapest, suggesting that the purchasing decision today is much more about the price/quality equation than any apps. The Surface continues to sell poorly, despite the tight Office integration, suggesting that this isn’t the solution. Microsoft has several assets in the communications space, not least Skype but also Outlook.com, and it has stores for purchasing apps and content. But it needs to go significantly further both in developing and creating compelling apps and making the experience on Microsoft devices better than on any others.

Until it does these things, Microsoft’s Devices and Services strategy is doomed to fail. Nokia makes some great hardware, but so does HTC. Neither company is selling bucket loads of devices despite the great reviews the hardware regularly gets, which is further proof that combining devices and services is critical for success in this space. Microsoft desperately needs to create compelling services, and then find ways to make those services perform best on Microsoft devices, if it is to spark interest in its devices and make a success of the Devices and Services strategy.

In this context, it’s useful too to think about the Nokia X line announced this week. How does that fit into a Devices and Services strategy? The whole thing is built on Android AOSP rather than Windows Phone. But if the strategy at Microsoft is around Devices and Services rather than necessary operating systems that may be OK, especially since the Nokia X line will reach parts of the market Windows Phone can’t address today anyway. The key thing is that (a) this is a platform that Microsoft can control, even if it doesn’t own it, and (b) it can put Microsoft services front and center, optimizing for them in the same way it would on Microsoft’s own platforms. As such, I think it fits fine with the overall Devices and Services strategy. The key problem is the same though: Skype, OneDrive and Outlook.com just aren’t all that compelling as a set of Microsoft services around which to drive loyalty, on the Nokia X line or with any other Microsoft devices.

Webster’s dictionary defines a worldview as the way someone thinks about the world. Everyone has a worldview whether they know it or not. This word came up often during many of my sociology and psychology classes. It came up even more often as I was studying behavioral science. When we talk about worldviews we often think about religious ones, political ones, scientific ones, or philosophical ones. As I began studying consumers when I joined Creative Strategies in 2000, I started applying this thinking to technology. I started exploring how different segments of consumers may have shaped or were in the process of shaping a technological world view.

I shared on my blog how my upbringing shaped my technological worldview in a way that causes me to look at technology a certain way. My worldview is that of an early adopter. I am an early adopter. I have a specific technologic worldview. My wife, on the other hand, is a text book late adopter. I approach technology emotionally where she approaches technology pragmatically. I have to have the latest and greatest gadget, and she will use her smartphone until it is no longer usable. Even then she will loathe the fact that it didn’t last longer. Our personality, exposure to certain types of technology, environments, and more, all contributed to each of our technological worldviews.

It can get complex when you start to peel back the onion of how, why, and what a particular class of consumer’s technological worldview was formed. However, it is extremely helpful when trying to understand consumers and how they may think about technology products. It is also very helpful in my line of work as I try to understand adoption cycles.

As of late, I have stumbled onto something that I feel is interesting related to technological world views. I have begun to gain insight into how consumers in countries like the US and Western Europe and customers in emerging markets like China, India, Africa, and others, all have come to shape a very different set of technological worldviews.

For example here in the West, most of our entry points to computing and the Internet was a desktop or notebook PC. This is the foundation for a Western technological worldview. Taking this point even deeper your preference of operating system, i.e. Windows or OS X, could also play a role in your worldview. The main point, however, is that this particular technological worldview’s foundation was set with a PC of some type. This is why so many in the west have a hard time grasping the idea that a PC is a legacy computer. And things like tablets, phablets, and smart phones are becoming more central computing devices.

In contrast, for consumers in many emerging markets their entry point to computing and the Internet is a smart phone. This fundamental point is shaping their technological worldview in very different ways than western consumers. This is the one major issue I see standing in the way of the chat apps that are popular in emerging markets attempting to penetrate western more developed markets. These applications like WeChat, LINE, and WhatsApp were born out of very different circumstances and targeting a group with very different technological worldviews. This is not to say that they can not be successful in western markets, but it hints at a point that the value proposition of these apps may need to be something other than the one that is appealing to consumers in emerging markets.

Similarly to consumers in emerging markets, we now have generations of consumers who know nothing but being constantly connected via a mobile device and are extremely comfortable with technology. My kids, for example, have no frame of reference of a world where they can not use a smart device for real time communication, information, and entertainment. This will shape their technological worldview which will open doors for new challenges and new opportunities.

Understanding the different technological worldviews and how they can be applied to classes of customers in every market of the globe can help us understand the many nuances that make up the global markets for personal technology and the consumers who will buy them.

One of the hottest topics in personal technology these days is the smart watch, one of several new categories of smart wearable devices. The idea with a smart watch is to offer tidbits of “glanceable” information and various types of notifications within a small, lightweight form that people are already accustomed to wearing on their body.

Conceptually, a wrist-worn computing device is an intriguing idea that carries with it not only the back to the future visions of a Dick Tracy-style communications device, but the promise of easy access to information and—thanks to the potential of integrating various sensors—the introduction of new data types that translate characteristics of both the physical world and our own bodies into the digital realm. If you really think about it, that’s pretty heady stuff.

Unfortunately, the reality of first generation smart watches has fallen fall short of this ideal. Instead, what we’ve seen is a number of very techy-looking products that tend to offer simple duplications of what our smartphones already do: notifications that someone is calling, displays of texts and social media updates, playing back music, etc. While some of those capabilities are certainly OK, we haven’t seen anywhere near enough applications and capabilities that take advantage of the smart watch form factor and justify the high price points. Most of the existing smart watches are essentially very expensive smartphone accessories—hence their limited appeal to date.

But for all the challenges and debates about smart watches, there’s one topic that has generated a completely unnecessary amount of discussion: smart watch operating systems. So, let me be clear, a smart watch OS does not matter.[pullquote]For all the challenges and debates about smart watches, there’s one topic that has generated a completely unnecessary amount of discussion: smart watch operating systems. So, let me be clear, a smart watch OS does not matter.”[/pullquote]

Remember, a smart watch is not a smart phone (well, except for a few companies trying to essentially put an entire smart watch into a wrist-worn form factor—given all the horrendous battery life tradeoffs that entails, all I can say is good luck to that…). The need to run the same OS as a smartphone, therefore, is completely unnecessary. An OS essentially provides a means to run compatible applications and a method for interacting with a device, and neither of these two key points translates between a smartphone and a smart watch. Most smart watches have screens that are less than 2” diagonally and, even if you could squeeze the same resolution from a smartphone into that tiny size, you wouldn’t be able to read it or interact with it as you can on smartphone display. In addition, the hardware platform that’s running inside a smart watch or other wearable is likely to be very different from that found inside a smartphone. So, the concept of OS and application compatibility on a smart watch has no meaning or value. Plus, smart watches are designed to be glanceable devices that you can quickly view from a distance. Bottom line is that applications and their interactions have to be completely rethought for smart watches and that can just as easily be done on a “new OS” (as long as there are reasonable development tools for the platform) as an existing one.

As a result, Samsung’s decision to move its second generation Galaxy Gear 2 smart watch to Tizen (instead of Android) is actually a good thing because it both breaks the inevitable functionality duplication that reformatted Android apps would have, and it helps position Tizen as a viable new alternative in the wearables area. But it’s also not about building up a different set of competing OS’s. Does anybody really know or care what OS is running on the popular Pebble line of smart watches? (For the record, it runs its own Pebble OS, now up to version 2.0.) No, because the key point is that Pebble has created a variety of developments tools that allow programmers to create interesting applications specifically targeted for smart watches. Similarly, I would not be the least bit surprised to see an Apple iWatch running something other than “traditional” iOS.

What does and will matter about smart watches (and all wearables, for that matter) is the ability to communicate with smartphones, tablets and even PCs of all operating systems and share information back and forth between them. The industry needs to leverage and, in the case of sensor-generated information, develop standard data types and means of communicating these data types across all platforms if we really want to see the smart watch industry survive past its current “fad-ish” stage. The open-source AllJoyn initiative started by Qualcomm looks to be an intriguing step in that direction and I’ll be very curious to “watch” where it goes.

Today at Mobile World Congress, Nokia announced a new family of affordable smartphones called the Nokia X. What is notable is that these devices are not coming from Nokia’s Smart Devices group which creates the Lumia and ships Windows Phone as their smart devices OS. This group within Nokia is the group that sells feature phones, hybrid feature/smart phones known as their Asha line, and now the Nokia X. This group focuses on the lower end of the smartphone market and in particular emerging markets. This group focuses on people in the market for their first mobile/smartphone.

The new lineup of Nokia X devices is competing in one of the fastest growing price bands of the smartphone market. The market for smartphones around the $100 price point is growing at 4X. Let’s look at the growth bands of price tiers for smartphones here is a look at my firm’s estimates.

The lower cost segment is the growth area and where the bulk of the next one billion new smartphone owners will come at this price segment. Nokia is targeting the X family right at this growth area. This group within Nokia has mobile distribution deals in place with over 90% of the world’s markets giving them one of the broadest carrier distribution networks of any global brand. At prices between $89-109, the Nokia X has a massive opportunity.

AOSP vs. Google

What makes the Nokia X family discussion worthy is not necessarily that it is running Android but that it is running Android with Microsoft’s, not Google’s, services tightly integrated into the platform. This sounds like a risk and to a degree it is, however, it is a risk that could pay off. The key question in my mind is not whether Nokia should have shipped AOSP but rather are Microsoft’s services competitive with Google in markets where Google competes. What intrigues me about this move is that Microsoft has stepped right onto Google’s turf, with their own software, and decided to attempt to compete with them on services.

The Nokia X comes with a service comparable to nearly every service Google offers. Outlook for email. Here for Maps. Skydrive for cloud storage, Office 365, Skype, and the Bing search engine. The big question everyone will ask is about apps. To solve that problem, Nokia is shipping their own Android app store as well as the top 5 most popular app stores in certain regions. The Nokia X devices also support side loading of apps that is another popular, yet little talked about, way that emerging market customers get their apps. It is common in many markets to go back to your carriers store and get apps installed or side loaded onto the device all without the need for an app store.

Most Android .apk applications work out of the box with no modifications on any AOSP Android platform. The last stat I heard from an AOSP platform provider was 70% of all the Android apps out there will work today on any AOSP Android device.

A Series of Firsts

The Nokia X is an interesting play in the market. It is targeted at a price tier that is catering to first time smartphone owners. The build quality, and the look and feel of the customized OS are highly differentiated from a part of the market where there is no differentiation. When you look at the market for products in the $100 dollar range, they are rectangles with a mix of plastic and glass that all look the same. The Nokia X will stand out from this pack at the same price range. This is significant.

While the Nokia X is an attractive product for first time smartphone customers, also known as the next billion mobile customers, there is a more significant first that could play out if these devices are successful. Nokia will successfully bring potentially hundreds of millions of new customers into the Microsoft ecosystem by giving them their first Microsoft ID.

An iTunes account was the hook Apple used the iPod and then the iPhone to acquire. Once customers got an iTunes ID and invested in the ecosystem they got a degree of lock-in. Google similarly used the hook of Gmail to get people into their ecosystem. If Nokia does well with the Nokia X, it could help Microsoft acquire their next set of customers. This is the most important strategic objective in my opinion for Microsoft. As I said before, Nokia again sits at the heart of Microsoft’s comeback. Forking Android and going after the next billion smartphone customers may just be crazy enough to work.

When you are as big as Apple only certain markets work because real growth must come in staggeringly huge increments. Only platforms matter—not technologies—because platforms become ecosystems; properly nurtured, they are self sustaining. Witness the iPhone: a radio, a screen, and some processing handed over to app developers becomes a game box, a newsreader, a mail client, an ATM…

Have you ever wondered how a watch was so-named in the first place? When did carrying a timepiece become “pocket watch” or “wristwatch”? The term watch is believed to have come from the Old English word “woecce”, meaning quite literally, “watchman”—it was how the town watchman kept track of his shift. Watches as timepieces were meant to evoke keeping an “eye” on the the town or the camp; guarding against unseen enemies. When it was your turn to be “on guard” you were posted to the watch for a certain period of time. That period of time was measured by the sun, the moon, then a clock tower and eventually in the 19th century, a device on our wrists. The history here is important because it was the function (watching) that derived the form (portable timekeeping) The simple act of telling time, became a platform on which the applications around timekeeping could be implemented. Measuring time was a way of coordinating remote events, calendaring, traveling, a scientific instrument, a navigation tool, and even a weapon of war. You can run a lot of apps on a timepiece.

While everyone has been focused on potential iWatch news: curved screens, iBeacon, Burberry, medical device hires and trademarking of names like iWatch, Apple has been busy building its next ecosystem. Apple picked your wrist because the last two hundred years of market research showed that many of us were willing to put a scientific instrument there. After that it has been an engineering effort to find out just how many useful sensors Apple’s engineers could cram into the space a human wrist afforded without making the wearer look like a dork. Apple jumped with glee when Samsung did huge amounts of public research for them for free with a Galaxy Gear Watch. Apple has seen just about everything that is likely to be a contender and all the competitors are standing around and well… watching.

To build an ecosystem, Apple is going after sensor density on your wrist as a way of truly keeping “watch”. If they are building this thing called an “iWatch” then they are going to gather data about you from your wrist and let a developer community write apps to monetize that dataset. Apple will provide the platform and developers will provide the usability. Apple will take their usual cut. You can bet iWatches will have cutesy “change the clock face” functionality, or text message alerts, but those apps will be sitting over a dozen unseen sensors buried in a liquid metal bezel, looking out from underneath a scratch-resistant sapphire face. Apple will hand out developer tools and a set of APIs that enable the making of medical diagnostic apps a breeze. Apple will have thought through how iWatch data is synchronized and secure; they’ll have modeled app pricing in the forthcoming “iWatch store” and have Jony Ive designed interchangeable watch bands at the ready. Apple will have considered third party peripherals based on protocols on which they intend to collect royalties. Importantly Apple will have decided than an iWatch requires an M7 motion coprocessor in your iPhone. This M7 requirement will force a mini upgrade cycle in iPhones for buyers of iWatches who are “stuck” on an iPhone 4. Ecosystems feed themselves after awhile.

My guess is that if such a device exists Apple will shy away from true “FDA approved” medical apps themselves because liability is a concern. Apple does not want to be paying out in a lawsuit for Uncle Don’s diabetic coma if an app fails to perform for some reason; they will want to punt this problem to the app developers. You thought all those hires they’ve been making with medical device expertise were for apps they were developing themselves? Probably not. Those well paid doctors are Apple’s new medical app evangelism team ready to help you develop your app. That shiny new set of devtools from Apple will have a shiny new indemnity clause in the shrink wrap agreement, so read it closely!

Because it’s a platform, Apple will likely announce it in the spring and tell everyone in the meantime that the iWatch is formally shipping “at the end of the summer”. Tim Cook will show a couple of in-house developed apps to get the creative juices flowing. Mark Parker, Nike’s CEO, will be on stage to demo Nike’s iWatch fitness app, which Tim Cook will gush over being “super excited” to use. Phil Schiller will breathlessly announce that the developer kit is shipping now! Eight hours later Apple will announce over twitter a mind-boggling number of dev kit downloads, and the race will be on. Will Apple make money off of an iWatch? Sure. Will they make a killing off the ecosystem around it? You can bet your life on it.

It’s a platform right? Lets get a jump on what could happen on the wrist that will make this the next must have gadget from Apple. Put in your suggestions and votes in the comments section and we’ll post a follow up “Top 10 Requested iWatch Apps” next week. Here are mine:

1. AppleTV remote control: I can waive my arm around like a wii remote and control my TV.
2. [insert your favorite] counter: steps, heartbeats…
3. Proximity sensor to my iDevice: if I get too far away from my iPad, my watch beeps and buzzes.
4. Configuration device: any iDevice I touch, knows my passwords, wifi settings etc. (remember they’re stored in the cloud not the watch, the watch is just verifying me).
5. Child alarm: I buy one for my kids so I know where they are in the mall—look for the ability to link more than one iWatch to an iPhone.
6. Parent Watch: my elderly parent gets one. I know when she’s up, if she’s getting her exercise, if she’s running a fever, if she’s taking her heart meds…
7. Credit card: with iBeacon and my phone in my pocket I only need to wave a watch at a pay station…
8. Heart attack warning: need I say more?
9. Glucose monitor
10. 911 emergency beacon with vital stats at the ready when the paramedics show up (if not already there via a phone upload)
11. Bonus app: Flappy Third. An iPhone game in which a poorly rendered 2D style bird has a broken wing. By flapping your iWatch enabled arm up and down you can help the injured bird fly and avoid pipes. Insanely difficult to play and you look creepy playing it in an airport.

The CEO succession at Microsoft and the approaching Build conference have made Windows 8 a hot topic again, raising lots of questions about where the OS goes from here. While there are lots of theories, few people seem to be going back to where Windows 8 came from in the first place, which is really useful if you’re trying to figure out where it might go next.

Windows 8 was about pulling tablets towards PCs and away from smartphones

Microsoft missed the boat on the current generation of smartphones. Though it was a significant vendor in the early history of the smartphone with Windows Mobile, it misjudged the entry of the iPhone, its impact on the market, and the resulting dominance of iOS and Android. That history has been well covered and doesn’t need to be rehashed here. But the important thing is that, as Microsoft saw the re-emergence of the tablet category following the launch of the iPad, it saw that tablets were being formed in the image of smartphones, not PCs, and that was enormously bad news.

Why was this so horrifying for Microsoft? I believe they saw even then that tablets had the potential to displace PCs, but the smartphone model had several disadvantageous features from a Microsoft perspective:

• The smartphone space was already, by 2010, coming to be dominated by two models: a tightly-integrated hardware/software package exemplified by Apple (and by then less successfully by BlackBerry) and a free, open source software licensing model embodied by Android
• Operating system licenses on smartphones are much lower than on desktops for Microsoft, and non-existent for essentially everyone else, threatening Microsoft’s Windows revenue and margins
• Smartphones ran entirely different apps from the applications that ran on desktops, with no cross-compatibility, eliminating the opportunity to sell existing versions of Office
• Smartphones were based on ARM architectures rather than on Intel, making them fundamentally incompatible with all the existing Windows software.

The diagram below illustrates the situation as Microsoft must have seen it in 2010:

Tablets could, at that point, theoretically go either way, and Microsoft certainly had the power to decide which way it wanted to pull tablets, whether towards the smartphone model or towards the PC model. And it clearly decided that its future depended on applying the PC model, rather than the smartphone model, to tablets. A PC model applied to tablets would allow it to continue charging high licensing fees for Windows, make Office applications easily available on the devices, and make them compatible with existing Windows applications from third parties. But it’s important to note that this was a decision driven entirely by what was perceived to be best for Microsoft, but by what would be best for the actual users of the products (The one counter-argument is that Microsoft would make Office available on tablets in more or less fully-fledged form, and this could be user-friendly as well as helpful for Microsoft’s bottom line.)

This, then, explains Windows 8, as the supposed solution to these problems. Microsoft would make the desktop, and not the mobile, version of Windows the core of the tablet experience. But by doing so, it forced on the desktop experience lots of things that made sense in the tablet world (the Metro UI, touch screens and an app store) but didn’t make sense there. Instead of taking a consumer-led approach and unifying two fundamentally similar products, smartphones and tablets, with a single OS, Microsoft tried to bridge the gap between two fundamentally dissimilar products, the desktop and tablet. And all of this was in the service of establishing the PC operating system licensing model and not the smartphone OS licensing model on tablets. 

But of course when it came to tablets, Microsoft had to make compromises to compete on price and form factor: the choice of ARM rather than Intel for Windows RT, and the resulting limitations of RT devices, ironically made them a lot more like smartphones, while eliminating almost all the consumer benefits of creating tablets in the image of the desktop. As a result, whereas the other two major platforms have one big dividing line from an applications point of view – between smartphone/tablet on the one hand and PC on the other, Windows has two – between smartphone and tablet, and between tablet and PC.

Where do we go from here?

If Microsoft’s ambition was to pull tablets in the direction of PCs, it clearly failed. The iPad and now a range of Android devices have enthroned the two dominant smartphone operating systems as the OSs of choice for tablets too, and there is nothing Microsoft can do to stop this at this point. Its own tablets have sold poorly, and its OEMs’ tablets haven’t sold that well either. Part of the challenge is that Windows tablets are competing on an uneven playing field from a cost perspective – wrapping in a licensing fee for a full operating system significantly increases the price for Windows tablets over the price of iOS and Android devices which don’t have to cover licensing costs.

But that’s far from the only reason why Windows 8 has been a relative failure. The bad decisions described above, which flowed from a desire to bolster Microsoft’s two cash cows rather than to do what was best for users, have left it with an operating system (or two) which meets almost no-one’s needs well, and sales have reflected that. So, where should Microsoft go from here? The following should serve as a good to-do list for starters:

• Merge Windows Phone and Windows RT, mirroring the existing iOS and Android structures, and rename Windows RT as Windows Tablet.
• Make both flavors  of the merged mobile OS free for users and OEMs, eliminating licensing fees
• Do much more to promote consumer services, notably Microsoft’s own Music, Video and Gaming stores and offerings, across its consumer devices (smartphones, tablets and Xbox)
• Continue with Windows 8 as a separate operating system, making Metro an optional overlay UI for touch-screens, but allowing users to choose the old-fashioned desktop UI as their primary or only UI if they so choose.

I’ll address each of these below in more detail.

Windows RT has largely been a flop, precisely because of those compromises and the confusion created in consumers’ minds about what it is and how it relates to the full version of Windows 8. It shares much more with Windows Phone than it does with Windows 8 in its limitations and in its architecture, and as such the answer is to rebrand Windows RT as Windows Tablet and merge it with Windows Phone, while leaving Windows 8 as a separate entity that works primarily on desktops, laptops and a few convertibles including things that look a lot like tablets but behave more like laptops in their functionality. This would be a recognition that Apple and Google were right all along, and thus a painful one. But it would also open the door to a couple of other strategies Microsoft could pursue.

Next, it should stop charging for licenses for Windows Phone and Windows Tablet.  By my own calculations, Microsoft likely makes under $1 billion from Windows Phone licensing annually, the vast majority of which comes from Nokia anyway. By ending license fees for Windows Phone, Microsoft would remove one of the competitive disadvantages every Windows Phone vendor labors under, allowing them (including Nokia) to either reduce prices or increase margins on their device sales. This doesn’t solve the other fundamental problems with Windows Phone, but it should at least accelerate growth. Microsoft ought to capture far more than $1 billion annually from growth in the hardware market.

Making Windows Tablet free would solve some of the same problems for Microsoft and its OEMs in the tablet space as it would in the smartphone space. It would reduce the cost of making the more consumer-centric Windows tablets, allowing them to be more price-competitive, potentially stimulating demand for the Surface among other tablets, which would also benefit Microsoft on the hardware side. Microsoft could then sell Office RT as an add-on for these devices (or continue to bundle it for free as a unique selling point), but should recognize that the primary reason most people buy tablets is not to do work on them.

The corollary here is that Microsoft needs to do a much better job selling its consumer services, the other half of its Devices and Services strategy. Microsoft now has competitive Music and Video stores, which are available across Xbox, Windows 8 and Windows Phone, but which it does very little to promote. These devices can absolutely be viable entertainment devices, whether by using Microsoft’s own services or the Netflix, Hulu and other entertainment apps available on them. But Microsoft says very little about these in its marketing of any of its devices, whether Windows Phone, tablets or PCs. Apple has built up an installed base of 500 million iOS devices by most estimates, and the associated content and application stores now generate almost $10 billion in net revenue for Apple annually. Microsoft’s massive base of Windows PCs combined with a stronger base of Windows-based smartphones and tablets could come to rival the size of this services and content business quickly, on top of the existing $7-8 billion annual revenue from the Xbox platform. Together, this revenue stream could easily outweigh the lost revenues from Windows RT licensing, which must be minimal today.

The desktop/laptop version of Windows 8 should continue more or less as it is. There’s nothing fundamentally wrong with it, especially in its desktop UI version, but Microsoft has caused itself huge heartache by imposing a user interface designed for touch screens on tens of millions of non-touch devices. The Metro interface is fine on smartphones and tablets, but both unfamiliar and poorly suited to a traditional trackpad/mouse and keyboard device. As such, it should make the Metro UI an optional overlay for those users who see value in it (probably mostly touchscreen users) and allow other users to banish it entirely and revert to the desktop interface. Another lesson Microsoft can learn from Apple is that, although it has driven significant convergence between the desktop and touch versions of its operating systems, it’s all been in the systems and infrastructure rather than in the UI, and there are good reasons for that.

To sum up, if Microsoft is to become a Devices and Services company on the consumer side and not just on the enterprise side, it needs to do what it can to stimulate the virtuous circle that exists between the two: compelling services drive device purchasing, and device purchasing drives usage of services, which in turn creates greater loyalty around the ecosystem. Today, Microsoft is so obsessed with driving Windows and Office revenues that it often takes steps which are either irrelevant to, or at worst, counter-productive to maximizing device sales and installed base and the usage of services. Taking the steps outlined above would stimulate device sales by lowering costs, incentivize OEMs who are on the fence about making Windows smartphones and tablets to give it another go, and at the same time foster Microsoft’s own burgeoning hardware business. On top of it all, it would finally give Microsoft a shot at building loyalty around truly consumer-centric services such as content consumption rather than insisting that Office and Windows are the only things around which it wants to build loyalty in the consumer market.

What a crazy world has been created by the dealings of giant telecommunications companies and cable operators, not to mention broadcasters, video producers, content creators, and internet subscribers. It is almost impossible to predict what the situation will be five years from now, as everyone is scrambling with relationships that seem to rearrange from day to day.

Let’s look at today’s situation:

• The Federal Communications Commission’s attempt to set network neutrality requirements on wireline internet providers was struck down by the Court of Appeals, which is likely to seconded by the Supreme Court.
• Comcast, the country’s largest cable operator wants to swallow Time Warner Cable, the No. 2 operator. If approved, the deal will probably require Comcast to extend the network neutrality promised when Comcast acquired NBC Universal to TWC at least through 2018 and perhaps to the combined cable company for several years beyond that.
• Some Verizon FiOS customers complain that Verizon is throttling the delivery of Netflix video, especially in the evening. Both Verizon and Netflix deny that throttling is a problem but it appears more likely that Netflix’s peering agreements are not providing enough bandwidth to handle the traffic at peak hours.
• In another case before the Supreme Court, a gimmick that lets Aereo deliver broadcast television stations over the internet may explode the billions of dollars in “retransmission consent” fees cable companies pay to broadcasters.

Are you confused by how these varied tangled affairs affect each other? That’s hardly a surprise.

Advocates Bumping. The situation is such that advocates seem to be bumping into themselves. For example, advocacy groups such as Free Press and Public Knowledge oppose the merger of Comcast and TWC even though such a deal would extend net neutrality requirements both in scope and time. A major reason for their opposition to the merger is the growth of a monopoly, although Comcast and TWC effectively are already cable monopolies in the separate geographies that they serve. And an net-neutrality bound, Giant TWC, would probably effectively cause Verizon, AT&T, Cox, Cablevision, and other smaller cable operators to stick with net neutrality as well. But the same advocates also want the ISPs to be regulated as common carriers, and arrangement that will push everything back into the 20th century.

In fact, the whole network neutrality fight is more about the past than the future. If an internet service providers customers want Netflix (or Amazon Prime Instant, or Hulu Plus,  or YouTube), ISPs, whether Comcast or Verizon or AT&T, are going to be feeling pressure to make their customers happy.

Worrying About the Future. And for the future, companies that are providing both internet broadband and cable content–and it really doesn’t matter whether it is a cable company like Comcast that doubles as a landline ISP or a telco like Verizon that doubles as both an ISP and a cable company–are all worrying about the future plans of content providers. For now, HBO (owned by Time Warner, which has now fully separate from Time Warner Cable) will provide its HBO GO over-the-top service only to customers who already subscribe to HBO via cable or satellite. But HBO execs have made it clear that when selling HBO Go directly to internet subscribers who want to cut the cable, the company will make that move in time. Disney’s ESPN may make the same maneuvers with over-the-top ESPN 3. And the producers of sports content are considering going around both the broadcast networks and ESPN to sell events over-the-top to fans on the internet. Today, it’s World Wrestling Entertainment, but next year it may be the Big Ten Network.

One thing that would clearly be a big help is the government could step in and provide a framework that looked out for consumer interests and provided an orderly framework for the 21st century. The main legal framework, the Telecommunications Act of 1986, was a mess when it was created and has gotten a lot worse over the past 30 years. Basically, congressional Republicans let the big cable companies such as the now extinct TCI write the cable sections and the phone companies, the old AT&T and the Baby Bells, write the phone sections. Broadcasters got their piece too. Every time the Federal Communications Commission has tried to go beyond the provisions of the Telecommunications Act, it has been slapped down  by the courts.

Trouble on the Hill. Congress was forced to write the 1986 law primarily because every one was tired with the efforts of the federal courts to deal with the complexities created by the breakup of AT&T. Unfortunately, there is no similar issue driving congressional involvement and deep divisions among both Republicans and Democrats make it very unlikely that any serious effort will come from the Hill. Chairman Tom Wheeler sees and opportunity for more aggressive FCC, but he also seems to have a solid understanding of just what Congress and the courts will allow.

This means we can expect a complicated and confused situation, in which big companies will try to rearrange things and the courts and the government will plunge in ways that add to the confusion. It’s going to be and interesting time.

 

 

A great deal has been written recently about the challenges that the PC market faces in comparison to other product categories, such as smartphones and tablets. But there hasn’t been much discussion about some of the self-inflicted wounds that PC makers have placed upon themselves. In the consumer market, in particular, many people find PCs to be more difficult to use than competitive products. Part of the problem, of course, has to do with the operating systems and types of applications available on the different types of products.

I would argue, however, that another part of the problem has to with the execution of certain principles long associated with PCs, especially with regard to input. Poor quality touchpads, in particular, have become particularly problematic and have turned what would otherwise be great, highly productive PCs into devices that all too frequently end up causing enormous frustration among end users. How many of us have had to retype words, sentences or even entire paragraphs (on some days, seemingly, every few minutes) when we somehow brushed against the touchpad, ending up selecting a chunk of text and started typing over it before we even realized it was happening? So frustrating![pullquote]Out of the box, I’ve run into way too many PCs whose useful value has plummeted in my mind because of the faulty performance of its touchpad.”[/pullquote]

It’s unfortunate, really, because generally speaking, touchpads have made great strides over the last several years. They’ve evolved from tiny, hyper-sensitive squares that were difficult to control to large surfaces that can not only accept basic pointer movements but right and left mouse-button clicks, scrolling and even multi-finger gestures. Part of the problem is that as the touchpad sizes have increased, so has our ability to unintentionally engage them into performing actions we never intended. Virtually all touchpads now come with customizable control panel software that enables palm rejection and other technologies designed to reduce these accidental encounters and, in many cases, tweaking those settings can make a big difference. Out of the box, however, I’ve run into way too many PCs whose useful value has plummeted in my mind because of the faulty performance (or poorly chosen preset settings) of its touchpad. In fact, it’s gotten so bad, that touch panel performance (or rather, lack of interference) is now one of my key metrics for measuring the overall performance of a PC.

Happily, not all touchpads suffer these kinds of challenges. Apple, for example, has done an excellent with its touchpads over the years, giving MacBooks some of the first large-sized, touch-integrated, gesture-friendly touchpads available for PCs several years ago and continuing to offer a rock-solid touchpad experience ever since. In fact, without starting a religious war, I think it’s relatively easy to even find Windows zealots who will acknowledge the general superiority of the MacBook touchpad experience compared to most Windows-based PCs. To be fair, there are also certain models of PCs from most of the major PC vendors that offer a high-quality touchpad experience as well, but the problem is it’s really hit and miss. If you dig into the specs of a machine and can determine the touchpad supplier for a given model that can help—I’ve generally found Synaptic touchpads to offer a better experience—but even there, the default settings of the touchpad driver may not be well suited to the way you type or work on your PC.

As with many things in life, it typically comes down to a matter of costs. Higher-quality, better performing touchpads cost a bit more than some of the alternatives, and in the hyper price-sensitive, profit-starved PC business, literally every penny counts. But in my mind, the at most $2-$3 difference in cost is well worth it—in fact, I would much prefer to compromise on virtually any other element on a notebook than the touchpad, except perhaps the screen. PC vendors do have some difficult design tradeoffs to make these days, especially given the challenging nature of the market, but let’s hope that more of them put the appropriate amount of attention on the elements that matter most.

In a recent column I wrote what I called my Blueprint for the future of Microsoft. In it, I proposed that Microsoft be broken into three separate companies or divisions – one focusing on IT, Enterprise and Business; one focusing specifically on mobile; and another aimed squarely at entertainment and the connected home. Many of the comments at the end of the article supported this viewpoint or at least saw merit to it. On the other hand, since this column was linked to by many other sites, I also got comments at the other end of the spectrum that suggested I was nuts. The best one recommended that I should apply to be on Microsoft’s board. One major blog in Seattle even used it as the basis to argue that Microsoft should not spin out Bing or the Xbox group.

When I wrote the piece I thought that allowing them to be separate companies had merit and in many ways I was thinking it could work. But since that time I have been studying more of Microsoft’s overall cloud initiatives and am wondering now if the best way to do this is to just create three distinct divisions that would have a laser focus on their specialties and integrate Microsoft’s overall cloud products into all of them in one form or another. For example, Bing would be a critical tool for use in IT and Enterprise, mobile and any entertainment and connected home products. Also their synchronization layer would be needed to keep all apps and services in sync between any of these divisions. To some degree I suspect this was part of Ballmer’s One Microsoft vision, however, I believe that ultimately his vision was still too PC centric and that is why he clearly was not the right person to move Microsoft forward.

Focus

The ultimate idea behind my blueprint still stands. It needs to be split into three major divisions that have a laser focus with objectives to be the top players in each segment they target. In past years as Microsoft grew, most of the focus was on their current cash cow products, such as Windows and Office, while the mobile group did not receive the proper attention or focus since PCs were still the major products being supported. However, with Apple introducing the iPhone in 2007, Microsoft should have seen its potential and put as much money and focus on mobile from that point on. Instead we heard that the mobile phone group was constantly competing with other more profitable Microsoft businesses for R&D funds during that time as well as clashing with the Windows group since it appears that they wanted the core Windows OS to eventually be Microsoft’s major mobile OS in the future.

By the time Apple introduced the iPad, Microsoft should have been ready to move Windows Mobile onto that platform and instead we got the current version of Windows 8.1 being pushed down to smaller screen sizes. This only emphasized the fact that the company continues down a PC centric path instead of seeing mobile for what it is – an opportunity create a rich mobile platform in its own right that could help them expand their presence in the era of mobile and its staggering growth curve.

Interestingly Microsoft already had a precedent of creating a dedicated OS that was not Windows based. They did that with the Xbox. That group fully understood it was not a PC and delivered a rich OS that focused specifically on the gaming experience but was smart enough to design it as a platform so that its use could eventually be expanded. Today it serves as a front end to a TV and delivers OTT programing from Netflix, Hulu, etc. It can also be fine-tuned to be a set top box if necessary.

In my blueprint piece, I suggested that this group, or division, also be given the connected home program and let it integrate Microsoft’s cloud apps and services into their products and services.

At the upper end of the market–mostly the commercial market–Microsoft still has to focus on Windows, Office and servers. Even though demand for PCs is declining, the industry will still sell between 280 to 300 million annually for at least the next 3-4 years. At the very least they will have to support the installed base of PCs for many years to come. Also, while demand for Office in consumer markets is also declining given the competition they have from Google, Apple and other SAS office like tools, Office 365 still has potential. This group oversees their cloud program and would have to work closely with the mobile and entertainment group to make sure things like Bing and ActiveSync is fully integrated.

As for Mobile, as suggested above, this group would also need to have a laser focus and not be forced to push any form of PC centric thinking that would influence their vision for mobile. It has to have the ability to create the greatest mobile platform regardless of its legacy links to Windows. While I don’t propose they adopt Android, as I stated in the blueprint article they should be free to create a rich mobile OS that uses the look and feel of Windows mobile but also be free to virtualize Android apps to run on Windows Mobile devices to help them gain access to the long tail impact of mobile software apps. As it stands now , they are not going to convince enough mobile app developers to create apps for Windows to make them truly competitive with Apple and Google’s Android ecosystems. This group should also spearhead any wearable products Microsoft would create for this market that is poised to grow exponentially over the next 5-7 years.

Microsoft’s cloud apps and infrastructure are critical to Microsoft’s future and need to be tapped and integrated deeply into all of these three groups or divisions. I suspect the best way to do this is not to spin each out but by creating three distinct divisions that will be empowered to have dedicated goals, focus and autonomy.

More importantly the mobile and entertainment group has to be free to move completely away from the PC centricity of the past and to a world in which the platforms for each group are designed to be best of breed without any legacy baggage. In my viewpoint this is the only way to deliver a One Microsoft vision that will keep them competitive and relevant.

Facebook and Twitter are at different points in their histories: Facebook just celebrated its 10th anniversary, generates profits each quarter, and has become a dominant force in global social networking, while Twitter has a fraction of Facebook’s users, loses money and seems to suffer from a crisis of identity about its role in the world. But the two companies share a common path to growth, and it’s instructive to look at where each of them is on that path.

Fundamentally, both companies need to do three things: grow users, get their users more engaged, and then find ways to monetize that engagement. Twitter actually makes this pretty explicit, but both companies provide metrics that allow us to measure how they’re doing on each of these three strategic objectives.

User growth has peaked at both companies

First, user growth. The chart below shows the growth in the number of monthly active users (MAUs) year on year at both companies, as reported by each of them.

What’s clear is that both have peaked in terms of user growth. Facebook peaked way back in early 2011 at around 260 million new users year on year, whereas Twitter seems to have peaked in 2013 at around 70 million new monthly users year on year.  Since user growth is the major lever for overall growth, this is notable in its own right, but it’s particularly worrying for Twitter at 232 million monthly active users than it is for Facebook at a billion more. To be clear, both are still adding subscribers at a decent clip, but the pace of growth has slowed at both, suggesting that if that growth happens in an S-curve as it typically does, both are already in the top half of the S. Twitter appears to recognize this, and on the recent earnings call CEO Dick Costolo talked about the challenge of shifting from a world where growth just “happened to” Twitter to one where the company actively has to seek growth. But recognition that something has to be done is not the same thing as knowing what to do about it. Unless Costolo and his colleagues can figure this out, Twitter’s future growth will necessarily be constrained and it’s doubtful it will ever come close to Facebook’s scale.

As context for Twitter’s current scale, here’s a chart that shows user numbers for various other popular services:

Twitter is shown in light blue, and although it’s recently passed Amazon’s number of active user accounts, it’s far behind Apple’s iTunes and iCloud user numbers, and just barely ahead of the number of Dropbox accounts, which is also growing more rapidly. If Twitter is going to be a mass-market phenomenon globally it needs to both grow significantly more quickly and achieve significantly greater scale.

Engagement

Twitter talks explicitly about engagement, and uses timeline views per MAU as its chief measure of engagement. Facebook doesn’t talk about it in quite the same way, but it does provide regular reporting on its daily active users, which are a good proxy for the proportion of users who are actively engaged.  The chart below shows these engagement metrics for Twitter and Facebook. The first chart shows timeline views per MAU for Twitter, while the second shows the percentage of MAUs who are also daily active users at Facebook.

The good news for both companies is that these metrics are very much heading in the right direction. The exception is the most recent quarter for Twitter, where timeline views per MAU actually fell, but this was the result of tweaks to the Twitter mobile apps, which led to less going back-and-forth to and from the timeline, depressing overall numbers[ref]See Dick Costolo’s remarks on the earnings call[/ref]. So it’s a one-time downward adjustment of the curve rather than a sign of a longer-term downward trend.

The other thing that’s worth noting is the variation by region. For both companies, engagement is significantly higher in the US than for their other regions. Facebook actually has a very balanced business in terms of users across the several regions it reports, with between 200 and 400 million in each of its four territories. Twitter, on the other hand, still has a very US-skewed user base, with 179 million domestic users and only 53 million overseas users, which only adds to the concerns about its slowing growth: it’s clearly struggling to achieve anything like its US penetration levels outside the US. However, both companies are successfully increasing engagement both domestically and abroad, to the extent that engagement numbers in overseas regions today are close to engagement levels from earlier periods in the US. This suggests that they are successfully matching US user behavior with overseas user behavior, just with a time delay of one to several years.

Overall, though, both companies are successfully increasing engagement, which means that there is at least one driver of growth even as user growth slows. However, Facebook’s engagement growth is slowing in the US, its dominant region, which is likely a sign that it is reaching saturation among its existing base, so it’s not all rosy.

Monetization

Both companies’ revenue is directly tied to advertising, which is another way of saying that they both have to find ways of monetizing the user growth and related growth in engagement in order to grow revenues. So the third lever for growth is increasing the amount of revenue per user, which is shown in the next chart:

The first obvious thing is that Facebook’s ad revenue per user is much higher, which of course reflects its greater maturity and experience in providing advertising to users. But both are rising in a healthy way, which is helping to drive overall revenue growth when combined with user growth and user engagement. Interestingly, though, both companies do far better at monetizing their US users than they do international users:

This is particularly dramatic for Twitter, which generated just 23 cents per MAU in the fourth quarter outside of the US, compared with over two dollars per MAU in the US. Facebook sees a greater spread between its various regions, with the US generating over $5 per quarter per MAU, Europe at $2.36 in Q4, and its other regions at under a dollar per quarter per MAU. Again, the good news though is that each company is successfully growing revenue per user.

The other thing worth thinking about in this context is what’s possible longer-term. Unlike other forms of revenue generation, advertising has a natural saturation point at which it becomes off-putting to users, which puts a cap on revenues per user. The revenues per user in the US of Google and Yahoo, long-established US-based online advertising businesses, are vastly different, and show the range of what’s possible. For this exercise, I’ve used Comscore’s numbers for desktop unique users for both Yahoo and Google sites as a good proxy for their number of US users. It obviously excludes mobile users, but my guess would be that neither number would rise dramatically if mobile-only users were factored in since the total numbers are both so close to the size of the US online population. The chart below shows US revenue per US user (using that Comscore data) over the last few quarters for Google and Yahoo[ref]Yahoo hasn’t reported its US revenue numbers for Q4 2013 yet[/ref]:

Google clearly generates enormously more from its US users than Yahoo does at over $30 per quarter. Yahoo, on the other hand, generates just over $4 per quarter from its US users. Facebook has already passed that amount, and Twitter is about halfway there at this point. But neither is anywhere near catching Google yet. This obviously tells us a lot about Yahoo’s struggles too: applying the same growth strategy framework to Yahoo suggests that it’s maxed out user numbers in the US and it’s engagement and monetization where it needs to make significant progress. The big challenge here is that Google has long since hit upon the holy grail in online advertising: search. Search is unique in that it pairs advertisers with users who have expressed an explicit current interest in the item being advertised, resulting in very high hit rates. By contrast, Facebook and Twitter can only hope to derive enough about their users’ general interests to offer up profile-based targeting, which is inherently less effective (though it may help explain Facebook’s interest in graph search and other forms of search). See this separate post on advertising business models for more on this.

The other thing that’s worth noting is that Google still generates a large proportion of its overall revenues from the US, even though its overall user base is obviously much larger in the rest of the world. This suggests that even mature online advertising businesses will always see much higher average revenues per user in the US than in the rest of the world, and it’s not just a question of a lag as with engagement. This is another important factor for Facebook in particular to bear in mind as its growth in the US slows to a crawl.

Conclusions

So where do we stand in evaluating Facebook and Twitter’s growth challenges? Both companies have stopped growing their user bases as fast as they once did, though Facebook has hit that point with about a billion more users than Twitter and is still adding about a quarter billion each year. Twitter’s slowing growth is worrying and should be a major priority for the management to fix. However, both companies are successfully finding ways to get their users to spend more time on their services, which combined with increased efforts to develop effective advertising products has led to significant growth in revenue per user. Both companies could continue to grow revenue significantly in the coming years even with slowing user growth simply by growing engagement and revenue per user, though at some point both companies will hit up against the natural limits imposed by advertising based business models.

Yukari Iwatani Kane is a former Apple beat reporter for the Wall Street Journal. Her book, “Haunted Empire: Apple After Steve Jobs,” is due out in March.

I respect everyone. I even respect journalists. ~ Alexander Popov

From an article in the New Yorker, Ms. Kane opines on the present state of the post-Steve Jobs Apple:

“People who shouldn’t be hired are being hired (like Apple’s former retail chief, John Browett, who tried to incorporate big-box-retailer sensibilities into Apple’s refined store experience). People who shouldn’t leave are leaving, or, in the case of the mobile-software executive Scott Forstall, being fired.

Mistakes, in turn, are being made: Apple Maps was a fiasco, and ads, like the company’s short-lived Genius ads and last summer’s self-absorbed manifesto ad, have been mediocre.

Apple’s latest version of its mobile operating system, iOS 7, looks pretty but is full of bugs and flaws.

As for innovation, the last time Apple created something that was truly great was the original iPad, when Jobs was still alive.

Although the company’s C.E.O., Tim Cook, insists otherwise, Apple seems more eager to talk about the past than about the future. Even when it refers to the future, it is more intent on showing consumers how it hasn’t changed rather than how it is evolving. The thirtieth anniversary of the Macintosh—and the “1984” ad—is not just commemorative. It is a reminder of what Apple has stopped being.”

Her conclusion? Today’s Steve-less Apple is as doomed as the Steve-less Apple of 1996 was doomed before Steve Jobs returned.

What…A…Crock.

You see, but you do not observe. ~ Sir Arthur Conan Doyle

Apple Is Doomed…Yet Again

To avoid criticism do nothing, say nothing, be nothing. ~ Elbert Hubbard

Ms. Kane’s book joins a long line of “Apple-Is-Doomed” articles and blog posts that stretch back to the very beginning of Apple’s existence:

— iPad Death Watch

— iPhone Death Watch

— Apple’s Macintosh: 30 years doomed

— “Apple Must…”: A Brief History of People Instructing the Company to Do Things

I’ll spare you further examples of this virtually endless list.

It’s so simple to be wise. Just think of something stupid to say and then don’t say it. ~ Sam Levenson

Apple-Watchers Respond…Yet Again

Meanwhile, veteran Apple-Watchers — yet again — debunk the cliched “facts” and theories enunciated in Ms. Kane’s essay:

— Understanding Apple

— Understanding Apple: When reporting doesn’t seem to lead to insight

— Why is Apple ‘doomed’ this week?

They have done such a fine job of responding to Ms. Kane’s allegations that I have nothing further to add…

…other than this.

The Lesson Is Unlearned…Yet Again

You cannot measure a man by his failures. You must know what use he makes of them. What did they mean to him. What did he get out of them. ~ Orison Swett Marden

[pullquote]You can’t reason someone out of something they weren’t reasoned into. ~ Mark Twain[/pullquote]

Here’s the thing. One can excavate, enumerate and eviscerate these oh-my-god-apple-is-doomed-again treatises until the cows come home but no amount of logic or persuasion will have any effect on those who write them either because the authors are being deliberately obtuse or because they sincerely have a fundamental disconnect with how life actually works. Mistakes are inevitable and the mistake itself IS NOT the problem. It’s one’s RESPONSE to mistakes that matters.

An (aphorism) is a short sentence based on long experience. ~ Miguel de Cervantes

Here are 8 aphorisms that promote the idea that failure is not only healthy but that it is the ABSENCE of failure that is troubling to the health of an individual or a corporation:

1. Mistakes are a fact of life. It is the response to error that counts. ~ Nikki Giovanni
2. Failure is success if we learn from it. ~ Malcolm Forbes
3. If you want to increase your success rate, double your failure rate. ~ Thomas J. Watson
4. Yesterday’s failures are today’s seeds that must be diligently planted to be able to abundantly harvest tomorrow’s success. ~ Pete Zafra
5. Give me a fruitful error any time, full of seeds, bursting with its own corrections. You can keep your sterile truth for yourself. ~ Vilfredo Pareto
6. Only those who dare to fail greatly can ever achieve greatly. ~ Robert Kennedy
7. If you are not willing to risk the unusual, you will have to settle for the ordinary. ~ Jim Rohn
8. We are all failures–at least, the best of us are. ~ James M. Barrie

Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations. ~ Steve Jobs

Not enough to convince you? I’ve placed another 41 aphorisms in the footnotes for your reading pleasure ((

A man of genius makes no mistakes. His errors are volitional and are the portals of discovery. ~ James Joyce
—
A mistake at least proves that somebody stopped talking long enough to DO something about it.
—
Anyone who has never made a mistake has never tried anything new. ~ Albert Einstein
—
Dream big and dare to fail. –Norman Vaughan
—
Error is the price we pay for progress. ~ Alfred North Whitehead
—
Experience: that most brutal of teachers. But you learn, my God do you learn. ~ C. S. Lewis
—
Failure is a delay, not a defeat.
—
Failure is a detour, not a dead-end street. ~ Zig Ziglar
—
Failure is an option here. If things are not failing, you are not innovating enough. ~ Elon Musk
—
Failure is the foundation of success; success is the lurking place of failure. ~ Lao-tzu
—
Failure is the mother of success. ~ Chinese proverb
—
Failure is the tuition you pay for success. ~ Walter Brunell
—
Fall seven times and stand up eight. ~ Japanese Proverb
—
He who does nothing makes no mistakes. ~ Italian proverb
—
He who never made a mistake never made a discovery. ~ Samuel Smiles
—
I am not discouraged because every wrong attempt discarded is a step forward. ~ Thomas Edison
—
I have learned throughout my life as a composer chiefly through my mistakes and pursuits of false assumptions, not by my exposure to founts of wisdom and knowledge. ~ Igor Stravinsky
—
I never make stupid mistakes. Only very, very clever ones. ~John Peel
—
I have not failed. I’ve just found 10,000 ways that won’t work. ~ Thomas Alva Edison
—
I learned much from my teachers, more from my books, and most from my mistakes. ~ Anonymous
—
If you’re not failing every now and again, it’s a sign you’re not doing anything very innovative. ~ Woody Allen
—
If you don’t make any mistakes, you don’t make anything.
—
If you want to keep on learning, you must keep on risking failure all your life. ~ John W. Gardner
—
If you’re making mistakes, it means you’re out there doing something. ~ Neil Gaiman
—
If you’re not making mistakes, you’re not trying hard enough. ~ Vince Lombardi
—
If you’re willing to fail interestingly, you tend to succeed interestingly. ~ Edward Albee
—
It doesn’t matter if I don’t succeed in something, what matters is that I learn from my mistakes. ~ Linda Evans
—
It’s not whether you get knocked down, it’s whether you get up. – Vince Lombardi
—
Keep in mind that neither success nor failure is ever final. ~ Roger W. Babson
—
Make failure your teacher, not your undertaker. ~ Zig Ziglar
—
Man errs as long as he strives. ~ Johann Wolfgang von Goethe
—
Our greatest glory is not in never failing, but in rising up every time we fail. ~ Ralph Waldo Emerson
—
Success is never final. Failure is never fatal. It is the COURAGE to continue that counts. ~ Sir Winston Churchill
—
Success is ninety-nine percent failure. ~ Soichiro Honda
—
Success is walking from failure to failure with no loss of enthusiasm. ~ Sir Winston Churchill
—
To produce we must be able to make endless mistakes. ~ Lesley Garner
—
The greatest mistake you can make in life is to be continually fearing you will make one.
—
There are only two mistakes one can make along the road to truth; not going all the way, and not starting ~ Buddha
—
There is no such thing as a failed experiment, only experiments with unexpected outcomes. ~ Buckminster Fuller
—
To dare is to lose one’s footing momentarily. To not dare is to lose oneself. ~ Sren Aaby Kierkegaard
—
With Pleasure own your Errors past, And make each day a Critic on the last. ~ Alexander Pope)).

I’m the only person I know that’s lost a quarter of a billion dollars in one year. It’s very character-building. ~ Steve Jobs

The Lesson To Be Learned…Yet Again

Is Apple (and Microsoft, Google, Amazon, Samsung, etc.) making mistakes. Yes. OF COURSE they’re making mistakes. That is the wrong question. The right question is whether one is…

…learning from mistakes…

The only real mistake is the one from which we learn nothing. ~ John Powell

…responding to mistakes, and...

It’s how you deal with failure that determines how you achieve success. ~ David Feherty

A man who has committed a mistake and doesn’t correct it is committing another mistake. ~ Confucius

…taking advantage of mistakes….

A failure is a man who has blundered, but is not able to cash in on the experience. ~ Elbert Hubbard

I always tried to turn every disaster into an opportunity. ~ John D. Rockefeller, Jr

Making mistakes isn’t the problem — in fact, it’s an opportunity to learn and do better. The problem occurs when one…

…ignores mistakes…

People do not wish to appear foolish; to avoid the appearance of foolishness, they were willing actually to remain fools. ~ Alice Walker

…denies the existence of mistakes…

More people would learn from their mistakes if they weren’t so busy denying them. ~ Harold J. Smith

…refuses to take responsibility for mistakes…

A man can fail many times, but he isn’t a failure until he begins to blame somebody else.~John Burroughs

…rationalize away mistakes…

There is no error so monstrous that it fails to find its defenders among the ablest men. ~ John Dalberg (Lord Acton)

…repeats the same mistakes…

Failure is not a single cataclysmic event. You don’t fail overnight. Instead, failure is a few errors in judgment, repeated every day. ~ Jim Rohn

…or just plain quits.

What we call failure is not the falling down but the staying down. ~ Mary Pickford

The Critics Are Mistaken…Yet Again

Let’s take a quick look at just two of the examples used by Ms. Kane in her essay.

First, she states that Apple had a terrible series of ads:

“(A)ds, like the company’s short-lived Genius ads and last summer’s self-absorbed manifesto ad, have been mediocre.” ((For the record, I vehemently disagree with Ms. Kane’s assessment of the manifesto ad. I think it is brilliant.))

And Apple’s response? Apple promptly stopped the ads and replaced them with a string of heart-tugging, critically acclaimed ads.

And Ms. Kane views this as a sign of Apple’s decline?

Second, Ms. Kane states that Apple made some hiring mistakes:

“People who shouldn’t be hired are being hired (like Apple’s former retail chief, John Browett…”

And Apple’s response? They promptly fired Browett after only 8 months and replaced him with Angela Ahrendt, CEO of Burberry.

And Ms. Kane views this as a sign of Apple’s decline?

You may have to fight a battle more than once to win it. ~ Margaret Thatcher

Did Apple bury their mistakes or delay their response to those mistakes in the hope that things would pan out? No they did not. They took decisive action to correct their mistakes and ended up all the better for it.

Mishaps are like knives, that either serve us or cut us, as we grasp them by the blade or the handle. ~ James Russell Lowell

Ms Kane’s examples are not examples of mistakes. They’re shining examples of how a vibrant, self-correcting organization takes ADVANTAGE of mistakes.

A man must be big enough to admit his mistakes, smart enough to profit from them, and strong enough to correct them. ~ John C. Maxwell

If that’s all the depth of analysis that Ms. Kane learned from her time as an Apple reporter, then I’m not at all surprised that she now an ex-Apple reporter.

Conclusion…Yet Again

Apple is certainly not above fair criticism. But they’re not below it either.

It’s a conceit that Apple’s failings are like fatal character flaws. Every company has failings, especially those that are wildly successful. ~ john martellaro (@jmartellaro)

If you want to argue that Apple isn’t learning from, responding to, or taking advantage of their mistakes…if you want to argue that Apple is ignoring, denying the existence of, blaming others for, or refusing to take responsibility for their mistakes…if you want to argue that Apple is repeating the same mistakes over and over again or that they’ve just plain quit…

…then I’ll be glad to hear you out.

But if you want to cherry-pick Apple’s mistakes while simultaneously ignoring their triumphs, view their mistakes without perspective or context, treat molehills like they’re mountains, conflate the trivial with the essential, and pretend that every mistake — no matter how minor — is the equivalent of a fatal flaw…

…then I have no time for you.

All of us have failed to match our dream of perfection. I rate us on the basis of our splendid failure to do the impossible. ~ William Faulkner

One of the more interesting narratives that is starting to become mainstream is the knowledge that there are versions of Google’s Android operating system which compete directly with Google’s Android operating system. Google offers to the world a clean, and updated, version of Android as an open source code base (AOSP). There has been an increase in coverage by the media to explain how and why Android should not be forked at this point.

What I have continually articulated publicly is that the best way to understand Android is to think of it as a platform for which others can create platforms. Google has taken the basic AOSP code base and integrated their services on top of it and offered this version of Android to be used by anyone who they approve by passing their device certification requirements. Amazon and Xiaomi are top tier examples of companies who have taken AOSP Android and used it for their own benefits by differentiating the platform in unique ways that fit their core business model. A commenter on a recent article, who states they are on the Android team eloquently explains what Android actually is and why is exists. I encourage you to read the whole comment but I have chosen these quotes:

AOSP is far more than the basic bones of a smartphone operating system. It is a complete smartphone operating system. The examples you provide for what it includes are very misleading — what about the launcher, contacts app, dialer and phone app, calendar app, camera and gallery and on? The fact is, if you build AOSP today and put it on a phone, you will have a pretty fully functioning platform.

AOSP is a fully functioning platform.

The thing you don’t have is stuff related to cloud services, and this is not an evil secret plan of Google, but a simple fact we have been clear about from the initial design of the platform: Android as an open-source platform simply can’t provide any cloud services, because those don’t run on the device where the platform code runs. This is a key point that seems to be completely missed. If you want to understand what Android is, how it is designed, and how the pieces fit together, you must understand this point.

Google’s services do not run on vanilla AOSP. Google takes AOSP and creates a new code base for which their services run. What becomes critical in the narrative is the word services. Software platforms are at their very basic core a mechanism to drive services. Windows was/is a mechanism to drive Microsoft’s services. Android is a mechanism for Google and others to drive their services. iOS and OS X are mechanisms for Apple to drive their services.

The data point gets voiced in the anti-forking Android narrative that Google’s services are so deeply relevant that it makes no sense to fork it. This is both true and not true at the same time. It is true in markets like the US and the UK that Google’s services are deeply relevant. You can even make a case that they are relevant in markets like India, and some other emerging regions, but this argument is less true in the same ways it is true in the US and the UK. Case in point.

On this Wikipedia page someone has taken all the regional data points publicly shared by Google about Play store for regions where customers can buy paid apps (column 1), developers can sell paid apps (column 2), and the following columns the types of content available (i.e magazines, books, music, tv, movies). The UK and the US are the only regions where all of the services Google has to offer a fully available. Worth mentioning, China is not even listed by Google as a region. *Thanks to James King for making me aware of this.

Now for comparison I took the whole of the Google Play availability for mentioned services and compared them iTunes((Here is the iTunes availably link. http://en.wikipedia.org/wiki/ITunes_Store)) since both mentioned in the global services conversation. Here is what it looks like. Green means a particular services is available and red means it is not.

What you see with regard to the Google Play services availability is the biggest issue facing Google. It is one that is forcing, in a good way, local companies in those regions to create and bring to market services of their own to support their region. China is the best example of this do date. Granted China’s Android ecosystem is a bit messy with over 100 different app stores but the region is quickly fixing these issues and consolidating.

The fact that Android is being used as an open source platform is not necessarily a bad thing for Google. What is challenging is that they are not making the impact with their services the way they need to be in many of these regions. Their competition in this case is not from the likes of Apple or Microsoft necessarily but from savvy startups looking to solve a problem in their region and doing it better than Google can thus keeping Google out of regions they may wish to compete.

As Apple looks about for ways to extend the iPhone-iPad ecosystem, personal health care seems like a natural. The iOS devices are already extremely popular with health care professionals, and apps that supply health information to doctors are among the most expensive products in the App Store. In a Tech.pinions Insider article, John Kirk figures that health care-based wearables could be the next big frontier for Apple. While I agree that health care will grow as a important element of the iOS ecosystem, Apple will likely leave the devices to third parties that are better equipped to compete in this specialized market.

The reason, in a word, is regulation. Throughout its history, Apple has wisely steered clear of highly regulated markets, whose hallmark is slow moving cautiousness. And markets don’t get much more regulated, or slower moving, than health care. Anything the Food & Drug Administration classifies as a Class II medical device ((Class I devices, “not intended to help support or sustain life or be substantially important in preventing impairment to human health” (Code of Federal Regulations) are simple  items such as canes or walkers and can generally sold without advance approval as long as they are safe. Class II devices, which includes most things that do any measurement or assessment, require proof of both safety and effectiveness. Class III devices are  the most regulated and are almost never sold except through medical professionals.)) , especially if there is anything novel about it.

The 23 and Me Challenge. The same sort of regulatory regime that cracked down on the Google-backed genetics company 23 and Me can make the consumer market for medical devices a big challenge. The AliveCor Heart Monitor (photo above) is a two-contact electrocardiogram that works as a case for an iPhone or a Samsung Galaxy S3 or S 4. But even if you know how to read an EKG yourself, you cannot just use it that way (at least not legally.) Although you can now order the $199 device without a prescription, you must send  the readings off for interpretation by either an AliceCore “cardiac technician” or clinical review by a board-certified cardiologist.

An executive of one company, who wanted to remain anonymous because of ongoing negotiations with the FDA, gave me an example of the frustrations. As part of a comprehensive home care system, the company had developed a connected blood glucose monitor. A diabetic patient would take regular readings, which would both be sent to a physician and measured against a database to give an interpretation and advice, say to go for a walk or eat something soon to regulate the glucose level. The FDA was fine with the physician notification part, but said absolutely no to advice and interpretation because that was practicing medicine and could only be done by a licensed professional.

The Challenge of Integration. Another impediment to entry into this market that the for mobile healthcare devices–glucose meters, pulse oximeters, blood pressure monitors, or pretty much anything else–they need to be part of an integrated system that pumps data into providers’ systems and specifically into their electronic medical records. This is an extremely complicated integration task and is almost certainly left to companies such as Verizon, AT&T, and Qualcomm that have made major investment in these systems. And even then it isn’t easy. It took Verizon more than two years to win full FDA approval for its machine-to-machine Healthcare Enabled solutions network.

The complexity of the approvals process makes for a painfully slow path to market. The realities of the system means that most purchasing is done not by consumers and often not healthcare providers, but third-party payers. Prices are high and markets are relatively small.

Just the sort of business the Apple hates.  I do expect that Apple will enter the wellness and fitness market with sensor devices that take advantage of the M7 sensor chip, which made its debut in the iPhone 5s.This is a crowded field, with companies such as Fitbit, Jawbone, and Nike already established as incumbents, but I would be surprised to see Apple do something new and exciting in coming months. But the broader healthcare business is a cup Apple may well prefer to let pass its lips.

According to this report Microsoft is pulling in healthy revenue from Android. We knew that Microsoft was holding on to patents which many Android OEMs are using and now paying Microsoft a fee. Microsoft may very well be making nearly as much and in some cases more than Google off Android.

Microsoft makes money off Android devices Google does not. Since Google’s services are not present in China, Google makes virtually nothing off Android devices in the largest global market for smart phone. Microsoft makes money per device in that region since most the major players in China like Huawei, ZTE, and Samsung all pay them a license fee for their Android devices. Microsoft benefits from China off Android the way Google may never be able to.

Ultimately, Google is dependent on not only devices with their services integrated to make money off Android but also the engagement of users using those services. ((Of course, with Google capturing data from Android they benefit in ways to their machine learning business. My point is tied to direct revenue from Android devices.)) Which seems somewhat problematic given that Android has become the standard OS for the low-end of the smartphone and tablet market. A segment that makes up the majority of the Android install base is also the less likely to be engaged buying apps, searching the web, and doing all the things that help Google make money off Android. While Microsoft makes a minimum fee off Android of at least $5, and sometimes more, Google’s revenue off an Android device varies and is dependent on the end user where Microsoft’s is not. I’d argue that Microsoft is able to monetize the low-end of the Android ecosystem magnitudes more than Google can. And certainly they can monetize the Chinese Android ecosystem in ways Google can not. Add it all up and it makes sense why there is good reason for Microsoft to not only support the Android ecosystem but to also continue to foster it.

In a recent Vector podcast, Ben Thompson articulated how if Microsoft was to move only into the services business that they would be a much smaller company. Ben highlights that Microsoft employs 100,000 people currently and is adding another 30,000 people with the addition of Nokia. He points out that if Microsoft was just a services business, that they would likely be a 50,000 person company. All of this is used to point out the most significant point for a company Microsoft’s size. They must attempt to capture value (dollars) from as many people as possible in as many ways as possible.

Windows alone is no longer a viable way to bring Microsoft’s backend services value to the mass market. If they can make money off a piece of hardware (like Surface, Nokia handset, or XBOX game console), off a services subscription from a consumer or a commercial customer, off an Android device sale, off an app store, off software (apps), off entertainment content, off accessories, and more, then you can make an argument that they may not just not shrink but that they may actually grow.

The worldwide market for smart connected devices continues to be a battleground not only for device makers, but for the companies that create the operating systems and ecosystems that power those devices: most notably, Google, Apple and Microsoft. Each of the companies currently offers two major OS choices: Android and Chrome for Google, MacOS and iOS for Apple and Windows and Windows Phone for Microsoft. While people have argued that some of these OS’s will merge over time, I believe we will continue to see these six choices (as well as a few others—though I expect the others to remain relatively small) for at least the next five years.

As I built the TECHnalysis Research Smart Connected Devices forecast that I first referenced in last week’s column, I used that assumption to create a forecast for operating system share through 2018, both in the US and WW. Perhaps not surprisingly, I believe Google will continue to dominate the worldwide OS share through 2018, particularly given the success of lower cost smartphones running Android that are getting popular in many emerging countries. However, the news is not all good for Google, as I believe the company’s share of total smart connected devices will actually peak in 2014 at 63% and then decline modestly to 57.1% in 2018.

The reasons for this expectation are all around the theme of this week’s column: the overabundance of OS choices (as well as the expected slowing growth for tablets and even smartphones discussed last week). Apple may not ever go for the low-end of the tablet and smartphone markets, but there’s no question that they will widen their reach into emerging regions and take some share in those critical markets. Also, while Samsung’s recent announcements with Google would certainly suggest there isn’t much hope left for the Tizen operating system, other low end alternatives, including Firefox OS and perhaps even Jolla or some other Linux-based variant will likely become an important Android alternative in these emerging markets. I even believe Nokia’s strong feature phone presence in these regions could lead to Windows Phone gaining some ground if the company is smart about transitioning the tens of millions of Nokia feature phone users over to low-cost Windows Phones. Finally, there’s also the big concerns about the ongoing splintering of Android, and even the possibility the company will battle itself by bringing Chrome over to the tablet market. The resulting worldwide market view is shown below.

Of course, the story in the US is very different. Here there is a much closer race between Google, Apple and Microsoft and other alternatives are nearly non-existent. I do expect that Google can maintain a very modest lead over Apple throughout the forecast, but it will be very tight. Microsoft, on the other hand, will continue to lose share due to the struggling PC market, but I believe they will gain modest share in tablets as more of them are deployed for business purposes (the only part of the US tablet market I forecast to grow between now and 2018) and if they can build on the modest momentum they have started to create around Windows Phone in the US market. The chart below shows my operating system market share forecast for the US.

Regardless of where the exact figures end up, there’s no question that the multiplicity of OS choices is going to continue to be a serious challenge for app (and application) developers. Admittedly, not all OS vendors are going to necessarily want to be on six (or even more) platforms, but the prospect of having to support 3-4 different operating systems is a very real one that will many software vendors will have to face.

If you’re interested in seeing the highlights of the new TECHnalysis Research forecast document (which covers significantly more than I could cover in a single column), you can download a free copy at http://www.technalysisresearch.com/sample_research.html.